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What are your intentions on the land market

  • Seeking to purchase land

    Votes: 90 25.6%
  • Wanting to purchase land but cannot afford to do so

    Votes: 109 31.1%
  • Wanting to sell to retire

    Votes: 10 2.8%
  • Wanting to sell to realise good values and may re-enter the market later

    Votes: 4 1.1%
  • Don't want to buy or sell

    Votes: 33 9.4%
  • Waiting for a market correction before buying again

    Votes: 92 26.2%
  • Don't know

    Votes: 15 4.3%
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Discussion Starter · #1 · (Edited)
The purchase of land is obviously the biggest decision a farmer ever makes and today's land prices seem unsustainably high. So I thought a little poll would be in order.

First a few assumptions. The price of land is a speculative price held under tension by affordability. A few months ago I sat around a table with two potential sellers and one potential buyer (myself). We all came to the conclusion that at today's prices no one could make any money from farming. So I said to them what does that tell you about the market if buyers and sellers alike can't see a way to pay for land? Nevertheless history has shown that on most occasions that the price paid will eventually be made insignificant in the face of changing circumstances ie improved commodity prices or some revolutionary technological leap that improve productivity.

You see I understand a bust a whole pile more than I understand a boom. In a boom people say buy at whatever price and don't worry about the price because the asset will increase in value and your equity will pay for the asset. In a bust values are just being reset because there was no substance to the increase in value. The big question is where are we on the economic clock? Values have already come off a little but the corporate end of town seems happy to pay good dollars. Bottom line thinking is an increase in the worth of a farming business will come from three basic areas. 1 I get paid more for what I am producing.2 I produce more of what I am producing off the same asset base. 3 the input costs for what I am producing drops.

I only find the first option plausible personally. World population growth requires more food at an exponential rate but there are other holes to plug such as storage and distribution where nearly a third of all food produced on the planet is lost I digress.

Increases in technology in food production seem to be incremental and rarely take huge leaps over the I would say 20 year investment period of land that it would at least take to pay it off.

Decreases in costs would seem also unlikely as mines for fertilizer have an economic threshold to run as do factories producing machinery. Any downturn would be short lived and unsustainable.

So my questions are what are your intentions? Are you seeking to buy land and can see future value in the purchase? Are you wanting to buy land as you can see future value but simply cannot afford to do so?
Do you think that land will drop in value because of a resetting of economic conditions and so are holding off on land purchases? Do you simply not want to buy? Do you want to sell to retire? Do you want to sell to realise values now because you think the market will drop and you can re-enter the market at a later date ? Don't know?

We are all participants in a market weather we like it or not. It is encumbent on us therefore to have a view on the market.
 

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I will likely keep buying small amounts of land, as I can afford to. It's not so much that it will ever do me any financial good in the form of income, it's just that I have encouraged my kids to build their own unrelated business at least until some point when they are middle aged.

No one can know what will happen then. Maybe I'll be a landlord for a stranger or maybe the kids will, or one of them might want to farm or ranch.

I actually think there is still a means to increase productivity on most farms for dollars invested. A few years ago some retired fellows were boo-hooing about how easy my job must be to plant those crops using such nice machines. When I told them what I did, was just as difficult as it would have been for them to plant a quarter section with an eight and a half inch drill, I don't think they even understood, and if they did, they didn't understand that the productivity doesn't just come from the drill. It mostly comes from the people and their organization of all of the minor jobs and small important pieces of equipment utilized to make every working second count when it needs to.

I actually enjoy growing and raising things, but when I sell the commodity, I always feel like I mostly did all of that for the buyer. Land is different, unless it is already perfect and presently at its maximum potential, I can always envision some kind of future opportunity to improve it. I personally have gotten away from this for a lot of years in regards to land, but I still see all kinds of potential to improve land a grade or two for more profitable use and property value increases.

So, I won't vote on the choices, I'm tired of paying for things, but would begrudgingly buy some more opportunity.
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What to do

Here it is a sellers market, prices is to high, even rent is high. But the main cause is, hardly any land come up for sale or rent. Land that is being rented is on long term rental agreements. My problem is, I can successfully buy land, half the size I am farming now, but there is no 150ha pieces of land coming into the market, most farms is over 400ha big. Neighbours. Isnt willing to share buy. They just want more. Law makes it impossible to share buy unless land is next to your own... Someday
 

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Good question Nig, and very difficult to answer as there are so many variables. Here's my twist. Supply and demand and Ag economics are the obvious factors driving land prices, but I see outside influences (in our area anyway) that affect pricing. Super funds, large non ag companies and overseas investment has also influenced pricing trends. Farm prices peaked in 2007 and then fell away sharply levelling out around 2010. This coincides directly with the GFC. The GFC shouldn't influence farm prices you would have thought, but it did. It did because investment revenue dried up, banks tightened lending criteria, property valuations across the board dropped significantly and equity vaporised. These influences have nothing to do with Ag economics which continued to trade strong through the GFC.
What I do know (through my other line of work) is that commercial construction has been dead in the water for the last 18months. That appears to be turning around, early days but certainly a lot more optimistic. Commercial construction is directly linked to investor confidence. Add to this that the US are whispering a rate rise and our economist are forecasting a rate cut. If this happens the A$ will drop to mid seventy's. A rate cut will stimulate investment in all sectors. A $.75 au will keep upward pressure on farm gate commodity prices and drive overseas investment in Australian property.
For what it's worth, my money is on property prices increasing...........but I could be wrong.:rolleyes:
 

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We might be a bit different we are looking to sell a little farm we have bought and done up.
When we sell we are going to buy another farm that needs some work.
 

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Good question Nig, and very difficult to answer as there are so many variables. Here's my twist. Supply and demand and Ag economics are the obvious factors driving land prices, but I see outside influences (in our area anyway) that affect pricing. Super funds, large non ag companies and overseas investment has also influenced pricing trends. Farm prices peaked in 2007 and then fell away sharply levelling out around 2010. This coincides directly with the GFC. The GFC shouldn't influence farm prices you would have thought, but it did. It did because investment revenue dried up, banks tightened lending criteria, property valuations across the board dropped significantly and equity vaporised. These influences have nothing to do with Ag economics which continued to trade strong through the GFC.
What I do know (through my other line of work) is that commercial construction has been dead in the water for the last 18months. That appears to be turning around, early days but certainly a lot more optimistic. Commercial construction is directly linked to investor confidence. Add to this that the US are whispering a rate rise and our economist are forecasting a rate cut. If this happens the A$ will drop to mid seventy's. A rate cut will stimulate investment in all sectors. A $.75 au will keep upward pressure on farm gate commodity prices and drive overseas investment in Australian property.
For what it's worth, my money is on property prices increasing...........but I could be wrong.:rolleyes:
they newly appointed US feds are doves...they have no intention to raise interest rates in 2015, as they recently stated within the last month. We raise interest rates much and our products will no longer be competitively priced. Obama and his party are no longer in charge as they are the minority. Historically when this happens the president does what he can to fix any international issues because getting anything to pass the house and senate is a waste of time...political gridlock as they say. But Obama knows how to point out that republicans don't like to give handouts, so he may try twist a knife for the next 2 years.
I didn't watch the presidential address last night but caught the highlights today...he lives in his own world.
 

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My brother has always said " what is happening in Europe" Millionaires own the land so they can hunt pheasants or what ever, give back to nature. The rich will own all the worlds land.
China and other country may buy up lots of land to feed there people. We all import from China, and we all owe them billions. They can cash in the debt for land. ( I hate to say it, but who need an army, if they have the money to take over a country)
The number say land value will go up over long term. That is why investment firms are put some of there Billion in agriculture land.
Most land owners have a choice when they sell, and will wait fro the high market.
Around me retired farmer, say they have no other place to invest the money if they sell their land. So they will keep the land, until they need cash or die. But I think we will see more, people leaving land to their children, and children will rent the land out, for their life time.
 

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ed- only if they can afford the inheritance tax to keep it. The further out the removed in relation from the owner/area the more likely they'll just rent to high bidder or sell for high price. Land has been fought over since day one...it will always be fought over.
 

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How much is inheritance tax?
If I put the land in a corporation could it then be passed on to the next generation, with out the tax problem?
I agree the children or grandchildren or greatgreat ... might fight and sell the land.
It would be ideal if they could see the longterm picture, rent the land and only take some of the profit out, each year and have some longterm income for many generations.
BUT I know what has happens to most family business/farm, most of the time, granddad starts the farm, father builds it up, son has it easy and the new equipment, grandson never sees hard work, can't deal with any problems, spends his money on people and equipment, until he looses it all to the bank.
 

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How much is inheritance tax?
If I put the land in a corporation could it then be passed on to the next generation, with out the tax problem?
I agree the children or grandchildren or greatgreat ... might fight and sell the land.
It would be ideal if they could see the longterm picture, rent the land and only take some of the profit out, each year and have some longterm income for many generations.
BUT I know what has happens to most family business/farm, most of the time, granddad starts the farm, father builds it up, son has it easy and the new equipment, grandson never sees hard work, can't deal with any problems, spends his money on people and equipment, until he looses it all to the bank.
I'd see your tax man about taxes and ability to put into a corporation...maybe a trust fund might be better?...If you are only receiving 3% of value in rent, that isn't a very lucrative return IMO...but if time passes and value goes up now it may be 7+% from what they/you paid. A person may be better off buying stock in a proven capital efficient company for the long term (finding them is the issue at the right price). I know of stocks that have made such moves in book value and dividend payments to where if 5 years ago you bought, now your unrealized gain would be 300% and your dividend would now be 10% of what you paid...that's a real return...over and over again.

Most people (and some advisors) can's see the big picture or understand the macro economics to such investments/inheritance.

Two things I have always heard-

First generation took all the risk, second generation paid off the debt, and third never heard of debt.

Those who don't understand interest pays it. Those who do collects it.
 

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Ha not me

I understand interest but I'd rather farm than be a banker.

Too much debt right now, in a couple years will have that paid down and be looking for more then. That's the plan anyways;). I predict land will be the same price in a couple years, if not a bit higher.
 

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I understand interest but I'd rather farm than be a banker.

Too much debt right now, in a couple years will have that paid down and be looking for more then. That's the plan anyways;). I predict land will be the same price in a couple years, if not a bit higher.
passion comes at a price. I'm done with debt for the time being... will see if any deals arrive with land locally in the next few years. I have little doubt in a pull back locally in land values, have already seen no sales at auctions.
 

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Ya it does

passion comes at a price. I'm done with debt for the time being... will see if any deals arrive with land locally in the next few years. I have little doubt in a pull back locally in land values, have already seen no sales at auctions.
With huge risk comes huge reward, or huge failure. I've risked a lot but I could also pretty near retire in my 30's on the equity I have. (if I sell out today)

Tomorrow is a new day, I could lose that equity as fast as I gained it. That's why I don't put it on the balance sheet (except the one for the bank)

Only time will tell who's right but I would bet the farm (and already have probably ha) that land won't drop in my area.
 

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Discussion Starter · #20 ·
I think the fact is that we have corporates around because they see the long term investment potential. Much like oil (haha) they reckon that demand has to outstrip supply at an exponential rate from population growth. Problem is will the market like the oil market throw a spanner in the works first where it goes down before it goes up? In some ways the corporates are more responsive to their bottom line than us family farmers, treating land more like shares in their willingness to get in and out of it when the market turns bad. Long term I think the land we sit on is cheap but my pockets aren't deep enough to sustain the current high prices till the markets turn.

I think though the increase in commodity prices needs to be gradual rather than abrupt as it was in 2007. Years like that did many farmers a disservice as they were brought on by panic rather than sustained demand growth ie not from production shortfall but market growth.
 
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