Lets look at all parts of ag or as many as we can do a analysis on.
first Land. Highest in Province now for sales is the Swift Area south. $550,000 a quarter or $3437 a cult acre.
That as a investment in a good fund would make min $38500 a year so basically you would need to rent it out for $240.00 a acre. Ah this is canada how is that going to work. Or buy a rental property building in same area for 1.1 mil or more with rental income or 72000 a year is 225 a acre comparison. Yes their is taxes etc but this is a example how land is not a great investment any more its a great time to sell out and say F#$K this Golfing is better.
So lets look again on the land the above comparison is based on different investments if you really had it all in cash, now if you have the cash you need $110,000 down and finance the rest 440000. Basic 10 year mortgage locked in interest for one year payment is $55,870.00 or $349.00 a acre land payment. Thats 32 Bushels of Canola or 41 Durum as they still have markets left to sell into. Oh lets give land the benefit of the doubt do a 20 year mortgage. $34,692 a year plus taxes also have to add in. Farmer or invested with 20% down will need $216.00 a acre just to pay his payment.
IS it just me or is something wrong with this scheme.
Yea its like the housing boom in any Canadian City. It looks awesome to the banks and book keepers if you buy one year and then the next pay more than the year before your new purchased stuff makes your old purchased stuff look awesome. Pyramid Financing. Works if crops and prices of product keeps going up but sooner or later and we never know the tipping point but the way down takes lots out LOTS.
Now lending institutions love when stuff is going up its great all they have to do is look at current and past and wow keep the train going forward makes head office so happy.
But again the down side sucks.
Ok back to land say the guy buying has 20 paid for and he's buying one or two lets use two.
Takes over 200000 out of his savings and borrows 880 thousand. Payments $111740 a year and add to the 3200 acres he owns its $31.72 a acre if spread out over the whole farm. Hey it works not bad but lets say he doesnt own all his land lets say he has 10 paid for and rest have debt similar but bought two quarters each year starting at 100, 250 375 450 550. with payments on two each year.
His paper Net worth looks good because the latest sale up values all his land. On paper his land has a value of $12,100,000.00 Mill with debt of $3,450,000. OR $8,650,000.00 with payment over every acre of 77. 28 still less than renting it but getting close but still can buy more. Wow its still working great lets buy next year at 600000 a quarter keep the ball rolling.
The basic pyramid works great till something somewhere causes a glitch.
Drought, Frost Gov changing and subsidizing and canada not, rail rain no rain insurance sounds good but payment is not good. All things add up to how the pyramid goes up and can come down.
Im not saying the tops in but i think were getting close to the top. USA land sales peaked almost two years ago and have dropped or stabilized. USA farmers are slowing purchases of new equipment and other things. Usually what happens their hits us two to three years later.
Its a great adventure lets see how it folds out. If your leaving ag or thinking about it or wondering what would happen if i pulled the pin payed the taxes and then came back in after its over. Well the down side depends on same things crops subsidies by others, rain hail drought grasshoppers and who knows what. I have said it before a guy i know build his first house in very good area of regina very good. Doubled the sale price and sold last boom it collapsed and he eventually bought it back for almost half. Phoenix is prime example of housing collapse. Still homes are way cheaper than Calgary regina.
Now land you can touch feel squeeze. Where as your investments are on a piece of paper. So who knows.
Equipment the other Pyramid scheme.
New prices are approaching 3/4 of a mill per piece.
Tractor , Combine Drill hell every tillage tool you need to pull is well over 100 and climbing. It just has to.
The pyramid works great if all player follow along.
By multiples get discount add a few acres to your farm and payments are met. Keep the ball rolling.
Now take the increase thats mostly in the dollar value and keep the next guys down the line paying it. Then have the third and fourth trades bring the firsts down even more.
Well it works to a point but prime example how it starts to show cracks.
RB Auctions has thousands of implements each week.
Use a T or four wheel drive. 5 years old or so.
Prime guy to buy.
Also has any one been amazed at all the new or just new equipment on Local 306 farm equipment or different farmer sites. Hell the Western Seducer even. New or almost new. Down sizing starting or what.
Dealer 400 plus your trade worthless basically what you owe or maybe equity to get it down to 300. Auction sale same piece is 200 plus.
Ah something doesn't add up. Oh the original expensive piece is now padded in the second sale.
Now to all the haters this is a example not me. Ok you get that its a example. Most good old style lenders know that farm equipment has very little equity in it if reality rears its ugly head.
So Farmers its a game and its one were losing.
Now lets look at inputs in Canada we pay pay and pay because hell the new miracle glue will give you 2 bushel advantage in perfect conditions. ha how many have that year after year. Or IT snowed in Texas have to increase the costs on Canadian production because their is a shortage in Texas. Again over and over.
Dont think we pay find a friend look travel or phone a old friend find out what others pay in South America or Russia for inputs. Hell explain why companies that are based in USA sell new iron thats maybe one or two series back for pennies on the dollar compared to what we pay here. No useless Carbon bullshit or all the save the world things. Just basic iron. Now tell me how we can compete.
Their is a new super power in AG developing and its going to explode. Its Ag in China, Russia or former soviet union and South America.
These players aren't or don't have to follow the rules as set up in Canada or USA. Who actually believes Monsanto is getting paid a fee in China Russia or South America. Really deep down who actually believes were on the same page.
Now yes they have issues as all farmers do with transportation. But Russia is looking into freight and trains. Hell have the Army manage the railway why not it works for the Mighty Mississippi. Or Let China build rail or ports to get product out back to china.
See its all nice to be boy scouts to the world but the world is cruel and will eat up the boy scouts if we dont get our shit together.
Then it begins with counties turning down shipments of product because of Ergot or China cant buy Canola game or Tarif on Peas 50% or the USA gets pissed and starts subsidizing again AG. Some say it cant happen well it does and are these signs of whats coming. No one wants to pay lots for food and every game will happen to get cheap food.
A crash in Canada would take us to third world this time with Amount of debt farmers carry if all deflates in price.
Sorry for the rant its just some thing to think about in this game we call ag. Maybe I'm wrong. Hell Bousquet use to preach and preach wheat was going to the moon then after he passes it hits finally the 22. yes it hit but only for a very short time. So your either right wrong or just coasting.
What are others thinking.
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