Land prices

[grassfarmer]

I think land values have become increasingly devolved from farm profitability. My Dad farmed from @1950 until the mid 1990's with the 50s-80s the most profitable time ever seen in UK agriculture. Within that time period he bought 3 farms, larger each time, and on every occasion was able to totally pay for the land with retained profits within 7 years.
If that was possible at times of record high profitability how is it totally impossible now with lower profitability? In the UK now it would take about 7 lifetimes to pay off a farm purchase lol.

This in turn is another big factor in driving land values - people move to where land is cheaper so they can expand. So while $1000/acre land may look really expensive to a local it looks cheap to a person who sold his land elsewhere for $4000/acre.
I guess you'd say the incomer will be in for a surprise when they find farming maybe isn't so profitable on the $1000/acre land as they thought. But if they stashed $2000/acre into another investment and still doubled their acres maybe they will be OK?

Another factor is house prices. With the new houses in town/city $500,000 plus buying a quarter section with an existing house doesn't look dear at $6 or 700,000.

[Oliver88]

Here is what FCC predicts.



Soft landing for farmland values
After several years of sharp increases, all signs point toward a slowing down of increases to farmland values in 2015.
If lower commodity prices are any indication, FCC’s Farmland Values Report in the spring should show less dramatic increases in farmland values throughout the country, with few exceptions.
“Low interest rates and strong crop receipts have been the two driving factors behind the recent increases in the value of farmland,” Gervais said. “But we already know that commodity prices are no longer at record-high levels. While increases in interest rates may not be on the horizon before the end of 2015, there are some signs that they may gradually increase.”
However, Gervais predicts a “soft landing” for farmland values – rather than a sharp decline – as land is still considered a valuable asset throughout Canada.

[Hopperbin]

I remember the early eighties. Interest rates. Took 20 25 years approx for land prices to pass what they were at back then. Seems to me interest rates brought up the price of rent as farmers struggled to farm more land to make a go of it. Then there was a stretch of 4 percent floating rates couple percent under locked in rates. Purchasing was actually cheaper than renting. Land value had a hard time climbing as farmers the buyers learned it hard. Then came the investors and farmers willi g to sell land and rent back. Its all history. Investors kicked ass. Once land is over priced how can it keep making gains unless there are enough crazies willing to take the chance. Remember where i farm our ancestors had to clear the land and remove initial rocks. In 2004 it would cost less to purchase entirely open drained cleaned up land than the cost of clearing it. I would wait to purchase now there must be better investments out there. My opinion is the experts should be the local farmers. We are more educated than most of them investors that have never even walked on their land.

[charliep]

My memory of the early 1980's for farmers is years of poor profitability, declining land prices/equity, banks that quit leanding money and an investment community that had their problems/no money to invest in agricultural land.

Likely told the story but a memory of mid 1980's was a land auction. Farmer who lost everything. Bank that took a hit on the land loan. Someone who from the community who paid half the prices that the land had sold for 5 years previous. Actually paid cash.

[Hopperbin]

Every city person knows that land values always increase. That is if you live close to the city. Some investors are purchasing swamp land and leaving it unfarmed. Will be interesting the farmers will cut back acres if the price is too high. Hopefully. Unless the some that are maxed out on the machinery deals. 0 interrest not neccessarily the friend. Gotta admit purchasing with no money down just a broken down trade and 0 interrest is hard to resist. Grassfarmers history experience is worth a lot.

[bucket]

Gervais makes me wonder if he knows when to wipe his ass after the shit kicking fcc is going to take after broadacre?

That might be harsh - just putting it out there.

[Kodiak]

Bucket. Do you really think FCC is unsecured on that land? Ever bothered to understand a property mortgage?

[bucket]

Remember when guys took write downs on their loans a few years back. They never paid back what they owed and now many are doing it again.

Most ended up with land for 25 cents on the dollar.

I suspect pike will come out of this unscathed. And richer in the end.

[SASKFARMER3]

No bucket this time pike signed personal guarantees both him and wife. Bye bye house in calgary!
Also FCC is covered very well it's land mortgage the ones who are screwed employees and all unsecured.

[phoenix64]

Yes interesting point, I phoned fcc 3 yrs ago when things were falling off the rails, told them I was gonna double down if they were gonna repeat the same scenario with loan write downs like the 80's, they assured me then they were well secured.

[grassfarmer]

An interesting comment I heard recently regarding FCC and land prices was that the average price of land in Canada more or less mirrors how much FCC is prepared to lend. Bit of a chicken and egg situation and if the Government backs FCC how much are land values really "market driven"?

[jake550]

FCC should stick to acting like a bank for farmers and ag business. Not manipulating land prices. They and other banks that were aggressively lending money for over priced land are going to have some people in trouble soon with any increase in interest rates and without some recovery in grain prices