Thoughts on Land Price Direction

[Guest]

In the 80’s a man could make enough in the winter to pay inputs and rent on .6 or 8 quarters
Now can’t even pay the fert bill alone
Off farm Work is hopeless now

[GDR]

So what is everyone’s opinion on where we are at based on the 1980’s? Are we even anywhere near having a similar type of event? Are we in a situation that will play out worse than that timeframe? Are we in the 70’s still, and have a few years before we have to start worrying?

Personally I feel we are on the crest, and headed over the downslope. Just not sure if it is a small gully, or a cliff.🤣 Not going to sit still in fear and do nothing, but want to look over my shoulder cautiously as well.

Timely thread for me also, thank you for that. No shortage of optimism in this neighborhood. I turned down a bordering quarter last spring at 1.1mill because i thought the price was too high when I could have gotten 4% interest rate and have kicked myself all year since. Now I've had 3 more quarters that i currently rent offered to me for similar money 10 miles away and poorer land but now I'm looking at 6/7% money or loose them as rental as a line up of guys are after them to buy. Land being sold everywhere here, guys very aggressive, nothing under 1 mill. Nothing makes it to the realtors, all private deals and gone, no chance to think about it as there are 5 other guys with cash.

One young middle aged guy, only owned a half section before last year and rented the rest has bought 7 quarters.... how does that work??

Everyone keeps telling me land wont go down. I'm not so sure, back to $11 canola, $4 barley and $6 wheat will curb enthusiasm pretty fast, and its not a matter of if that happens but just a matter of timing.

Interest rates don't need to go much higher to have a huge impact, it just takes time to work its way through the system.

UFA tells me all kinds of guys have balances owing on their accounts at 19.5%. How long can that last? Is conventional operating money getting tight?

So who knows what the right answer is? Worst part is life is too short to wait these things out. I am trying to remind myself daily, if you are making a decent go of it as it is, why do you need more? And if you need more, just make sure it doesn't risk what you already got.

[Guest]

Well all you need to ask yourself is ;
Has land ever dropped before ?
If you can’t answer that , just ask anyone who was farmin about 82

[blackpowder]

Yup. 22 years to get back to 1981 price. It actually shaped my mindset for most of my career. And led to many missed opportunities. But I'm still here.

[Taiga]

Lost out on bordering land once (I tried), guy who bought it went bankrupt three years later. Lost out a second time (I tried again), new guy is on the same path, looks like same timeframe. Third time is coming, might get it right this time. Don’t need, it’s just hard to miss out on bordering land.
There is a lot of debt out there and expenses are extreme.

[blackpowder]

Maybe the question is; is there a paradigm shift coming? Or a big bump that recognizes actual economics?
I often think in those terms when I recall the people who quit in the 80s.
Or the cattle farms before BSE.
In sudden fashion, actual economics that had been evident, slapped some real hard. Triggered by an unforseen event.
So what writing is on the wall today?
Interest costs are double. Cost of living took a big jump. Sure, but what big harbinger do we see? That's what I'm not sure of.
For me and I assume others, economy of scale is getting increasingly difficult.
The smaller to medium sized operations will disappear quickly as many will age out.
All the buyers here are multi gen, multi family, larger operations.
As always, trade issues are the risk.
What is certainly different now is the velocity of change. Speed of money is unimaginable compared to then.

[shtferbrains]

Wasn't so much the high land price alone but high interest on top.
Also CWB didn't cash flow worth a darn.
Operating loans were hard to negotiate if land price/equity was eroding.

Smothered a lot of enthusiasm for borrowing.

[GALAXIE500]

In my area , land prices will depend on how greedy one buyer is compared to someone else. It's been this way for years.

[Old Cowzilla]

Just for the record it wasn't just high int. rates that kicked everybody in the 80's. Canola dropped 30% from its highs and the wheat drop so much that there was no final payment on no. 1 the one year. ( 86 I believe ). Oh and some drought years thrown in for some more good luck. We all know from business that when things go wrong it's a few things at the same time. Dam it's -1 this morn not bad for January !

[jazz]

Rates cannot go back to 19% like the 1980s. The entire financial system including govt sovereign debt would default at 6%.

US is already spending more than its military budget servicing the debt.

Canada is spending $40B a year on interest pmts. Who knows where Japan, China and the EU are.

[goalieguy847]

Its truly a precarious time...

Im of the belief that commodity prices wont come down more than 10-20% over the long term with canola most likely settling into that 16$ range...
Currently the only thing holding the cap on land values from exploding is the interest rate..and if that starts to come down in 2-3 yrs then land values should keep going up.
If we in western canada can start consistently gross revenue-ing 800$/ ac vs the 500 we have been used to ..then itll get interesting.
I believe land trades around 8 yrs of gross revenue value ..maybe 7. But somewhere in there.
1000$/ ac gross should bring in 7 k/ ac.
5000 was roughly 3500/ ac and i would buy every acre i could at that ( if it was good land...)

[Sheepwheat]

Last time I checked, gross doesn’t pay for land nor pay a living. Net is where it’s at.

A guy can gross 800 bucks and net peanuts.

[jazz]

If we in western canada can start consistently gross revenue-ing 800$/ ac vs the 500 we have been used to ..then itll get interesting.

You forgot to count the double cropping we will be doing when climate change finally arrives.

[makar]

Well all you need to ask yourself is ;
Has land ever dropped before ?
If you can’t answer that , just ask anyone who was farmin about 82

My own 1979, sitting on a tractor 1969. I have lived for better or worse to survive not get rich, still surviving. !981 broke half the people made the other rich on interest.

[makar]

Rates cannot go back to 19% like the 1980s. The entire financial system including govt sovereign debt would default at 6%.

US is already spending more than its military budget servicing the debt.

Canada is spending $40B a year on interest pmts. Who knows where Japan, China and the EU are.

Rates werent 19, they were 24 to us.