Been there. Done that. Lived the SitCom.
Posted on 07/20/2011 5:37:09 PM PDT by Diana in Wisconsin
In January 2009 when I wrote about farming being named as one of the hottest green jobs for the next decade, I imagined that more children would decide to stay in the family farming business instead of pursuing a different career. However, a recent article from the Associated Press is opening my eyes to a new type of farmer, the gentleman farmer.
Bernard Condon introduces readers to Braden Janowski, a 33 year-old software executive that spent $4 million on 430 acres of cornfields last year. Although Janowski’s purchase surprised other farmers in the area, it may be a sign of things to come.
“A new breed of gentleman farmer is shaking up the American heartland. Rich investors with no ties to farming, no dirt under their nails, are confident enough to wager big on a patch of earth — betting that it's a smart investment because food will only get more expensive around the world.” [Source: MSNBC]
The surge in farm values is actually cause for concern. According to Condon, farmers are switching to today’s “hot” crop, those with the highest prices, and the result could be bubble-like. Condon cites a recent 8 percent two-day drop in corn prices after the government announced that this is the second-largest crop in 70 years.
Investors are starting to show up at farmland auctions with more frequency these days. Condon’s story reminded me of the housing market boom of a few years ago. Housing values soared, people stretched their budgets to get a house with the help of creative financing and investors swooped in to help drive up the market. We all know how that turned out – the bubble burst and a record number of homes went into foreclosure.
Is a farmland bubble burst in the future? I don’t have a crystal ball so I can’t tell you but the FDIC is concerned that the nation might be in the middle of another farm bubble. The organization recently held an educational session for farm lenders to warn them about over lending.
What do you think? Will the growing demand for food support the steep rise in farmland prices or is this another bubble waiting to burst?
Been there. Done that. Lived the SitCom.
the main trouble with markets is that most people think linearly instead of parabolically...of course, just figure out where you are on the parabola and you can profit handsomely...
4 million for 430 acres? Man, someone saw a world class sucker coming right there. That land will not cash flow in his lifetime.
A little bit on the subject I guess: Lots of investors came to Texas and bought houses and rented them out. If the investor goes bankrupt and is no longer in business, to whom does the renter pay the rent?
btt
I agree.
Even as a future housing development, that’s pretty pricey.
But a lot of the hedge fund folks expect mega inflation.
It’s getting so only the rich can afford a farm these days.
I can’t speak for the rest of the country but here in Maryland farms are being bought up to be cut up into 5 acre home lots. The ones who arent cutting them up are leasing them out to a big farmer.
The rich who buy them like the idea of living in the middle of 200 acres with only corn or grain surrounding them. The big farm leasers are getting subsidy’s from the govt. and sharing that with the Doctors and Lawyers who can afford the farms.The guy with the lease doesn’t have to pay p[roperty taxes on the land he grows crops on. It’s win win.The land will always be a good investment although they cannot grow 4 million dollars worth of crops in their lifetime.They don’t care they dont need the money anyway, they get privacy which is what they want.
Land is always good to buy, They aren’t making it anymore.
The land around here is getting so high that our native bunch of Amish and Mennonites are selling out for big bucks and moving to places where land is cheaper.
The average farmer if he didnt inherit the land is out of luck, The crops they can grow on the land after buying fertiliser,fuel ,seed, tractors, combine, will not make the payment on the land.The small farmer who used to raise a family on 50 acres is a dead breed.Especially since the big money crop—tobacco—is no longer a viable option.
“...of course, just figure out where you are on the parabola and you can profit handsomely...”
You betcha! :)
Medical Marijuana? Maybe he’ll “plant” windmills?
“4 Million for 430 acres?”
My first thought, too! My Little Acre is worth a mint, LOL!
Amazing how when a couple trillion dollars are created, some of those dollars find their way into non-depreciable assets.
To the new owner if they wish to continue the rental contract.
And the seed, water, fertilizer and diesel fuel to run it all and harvest.....don't forget the maintenance...roads....buildings ...machines.
He is also going to set up a vegi and fruit garden....no running off to the supermarket for a can of beans and a packet of smokes.
The difference this time is that most land purchase is not leveraged. It has real money in it, not borrowed money. Sure land is high priced but the rent is a 3 percent return on investment. Find that secure return any where else now.
Can it change overnight again, you bet it can and will.
Who is the “new owner”? If he financed it the “new owner” would be the bank that foreclosed on the property. I’m talking about someone who paid cash for a house and rented it out. Then the guy goes under but does not file bankruptcy. Who owns the house?
Then the owner still collects the rent. Owner, renter, contract. What’s the question.
I hope they lose everything- including their asses !
The practice of farming is called “husbandry” for good reason. A good husband nurtures and develops his marriage with long-term goals in mind always.
Farming - today - requires long-term planning and a level of dedication and industry that would shame a sammuri. Today’s farmer can’t just look at this/next years’ crop forcasts. He has to intrepret them and apply that knowledge to his land, micro climate, vendors, markets, equipment inventory and a host of other variables. His objective is not merely to “harvest a crop”, but to plan his crop rotations and farming practices in order to improve his land’s fertility and tilth.
How many “white collar farmers” have the inniative, knowledge or endurance to perform these tasks - often at insignificant earnings ratios - long enough to guarantee our “food security” ? >PS
Oh, I know all those expenses all too well, along with the unexpected “oh crap!” expenses. The one that really ticked me off was when a t-storm blew down our hay cap, smooshing a baler underneath it, and clipping a swather at the edge. Fun times.
Clueless people like this, paying land prices like that are a pretty good indication that there is the sort of stupid price chasing that inflates bubbles.
People who get conventional farm loans have low leverage, true. But for the too clever by half mba/investor in farm land, they could be using all manner of non-conventional funding to pay these sorts of stupid prices.
Here’s a little factoid for folks: we have seen back to back bubbles in the US before. In the two prior instances, farm land was the last asset class to bubble up in a sequence of “equities, developed real estate, farmland” and the reasoning of those who bought into farmland at elevated prices before is the same one we hear today: “They’re not making any more of it......”
Heard of 200+ acres in North central Iowa that sold for over $11,000/acre last week. Crazy.
I would love for someone to put together an archive of the farm publications from the late 70’s early 80’s.
It would be very interesting to read the Farm Journal, Successful Farming, Pro Framer articles from that time again; before the bubble popped.
I hear the logic of why it's different this time. But I remember hearing people say that in the late 70’s. And I remember a lot of investors buying farmland then also.
I just think we will find it in a bad way that it isn't different this time either.
The pain for some was immense then; I really hate to see that happen again. Many good people suffered a lot.
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