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CLAYTON RYE

By Staff | Feb 1, 2013

The high price of farmland is not really a new subject.

My earliest memory of someone paying too much for a farm was around 1963 when a farm east of where I was growing up sold for the unbelievable price of $400 an acre.

That prompted my dad to say about the purchaser what he always said when a farm changed hands: “He’ll go broke for sure.”

In the early 1960s, corn was probably selling for around a dollar a bushel and yields were around 75 bushels an acre so paying $400 an acre when your gross income was $75 an acre annually may have seemed somewhat risky.

Today, that same farm may rent for close to $400 an acre.

With 200 bushels an acre yields and using a price of $6.00 a bushel means that farm will gross $1,200 an acre annually – and that would still have my dad saying “He’ll go broke for sure.”

My dad never did buy any farm land – and with that attitude, we know why.

With the fast appreciation in farm land values of recent years, we are all left asking, “How high is too high?”

There should be a leveling-off somewhere, but we do not seem to be there yet.

While chasing links on the Internet (something I do hour after hour), I read an interesting article from the Financial Times of London.

It seems the Financial Times has discovered the rapid appreciation of farm land and, in these times of rates of return in the lower single digits, something that appreciates in recent years at the rate of 20 percent annually and provides an annual income, is something to get excited about.

However, even the Financial Times was somewhat apprehensive about the current price of tightly held U.S. farm land and they did what everyone does when prices are too high, they went looking for a better deal.

It was interesting to read about the price of land when the writer is looking at land only from a standpoint of return on investment. It does not tie him to one area.

Any farm land that might interest me has two questions that come first. How much and where is it?

The “Where is it?” question is just as important as “How much?” because I want to know if I can drive a tractor and combine there. If I can’t drive there easily, I am not as interested in it as the neighboring farmers.

So the Financial Times only question of “How much?” was investigating farm land in Australia, New Zealand, Russia, Africa, and South America.

They were also looking for bargains in these countries where the farm land has not yet been developed which, once it has become productive agricultural land, will greatly increase its value.

But looking in other countries added some new questions that I have never considered when thinking about buying a piece of ground.

Two important questions were “How stable is the government?” and “Would the government respect private property rights?”

After that came more important considerations such as infrastructure and access to capital.

It made me all the more appreciative of what we have right here at home.

That takes us back to the question of “How high is too high?”

I can say that for every remorseful seller who discovered years or maybe only months after the completed sale, there is a relieved buyer hoping and believing this purchase might work out after all.

No buyer wants ever to be on the wrong side of a correction in land prices.

That will be when my dad’s words are no longer prophecy but have become true and “He did go broke for sure.”

It is now possible to go broke buying farm land internationally. My dad would enjoy knowing that.

Rye is a Farm News staff writer and farmer from Hanlontown. Reach him by e-mail at crye@wctatel.net

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