Posted on 04/11/2011 12:09:05 PM PDT by bruinbirdman
With full support from the Treasury Department, the Federal Reserve continues to weaken the dollar in order to "stimulate" the economy. Such exercises never create sustainable growth, but they sure are disruptive. One destructive result is that capital is misdirected because of false price signals. When the dollar is debased, commodity prices rise and speculation increases. Thus, it's impossible to know what the real supply/demand price is of a commodity or an asset--primarily land--related to the commodity.
We see this harmful phenomenon playing out in farmland prices, which went up 12% last year, while doubling over the past decade. Prior to that farmland prices had been relatively stable. Agricultural lending has gone up 98%, to $68 billion, over the same period. As a proportion of the economy this is not a big deal; nonetheless, it is soberly illustrative. What's unfolding in agriculture is, in principle, a milder replay of the boom/bust disaster of the 1970s and early 1980s.
During that violently inflationary period the average price per acre of farmland soared more than 350%. Soybeans, wheat, corn and other crop prices also zoomed, as did farmers' incomes. And their liabilities quadrupled to more than $200 billion. Then along came Ronald Reagan, who was determined to cure the inflation disease and who gave Fed Chairman Paul Volcker the political cover to do so. The aftermath in the farm belt was ugly: Commodity prices plummeted; land prices crashed; and thousands of farmers went broke, as farm incomes dropped more than 60% from 1981 to 1983. Land/commodity speculators were wiped out.
Agricultural bulls say things are different this time. Banks are more cautious about lending and are demanding down payments of 35% to 40% for agricultural land loans. Despite the current uncertainty, it's obvious that the world's appetite for agricultural
(Excerpt) Read more at forbes.com ...
Buy land, they aren’t making anymore of it.
Some large ag properties have recently been purchased by truly rich individuals. As for vacant land in general, it will fluctuate. But what will the dollar do?
That's what my son keeps saying. You'd have to buy an awful lot of it to make it pay if crop prices drop and you're carrying roughly 60% debt on it.
Even owned free and clear, for smaller landowners, you have to plan carefully to make it pay unless you farm the whole thing yourself. Even then there's still risk.
There isn't much prime farmland available to buy right now.
“Agricultural bulls say things are different this time.”
Sure. Commodity prices up, land prices up, borrow to buy equipment on inflated land values, repeat as needed until “The Big Oops” comes along....again.
“With full support from the Treasury Department, the Federal Reserve continues to weaken the dollar...”
And yet we give these evil bastards a free hand, without challenge, at destroying the country.
They make more people every day, but there is a fixed amount of land.
Commodity prices will continue to escalate (also oil) so long as large commodity purchases are allowed by the market. All kinds of people/groups are buying large ETFs for things they have no intentions to ever use. Things like corn, wheat, oil, etc. should primarily be sold to end users like cereal companies, beef feed lots, airlines, etc. Only small positions in the market should be permitted for small traders only.
The article is correct. Big US grain companies are into large joint ventures in South America- Brazil. Buying 1 metric acre (which is 2.46 english) for $1,000. There is a lot of need for grain in SA, but since the government is building rail to the new major ports, I am sure Brazilian grain is heading for the US in 2 to 3 years. Currency devaluation is always a short term high with long term consequences.
Crops aren’t the way to go. Too expensive unless you are born into a family farm.
Four legged crops are the way to go.
Cattle ranchers seeing record auction prices
http://www.chicoer.com/fromthenewspaper/ci_17817254
Four legged crops are the way to go.
Barn burned down years ago and all I have is a small livestock shed where the house tenant keeps his horse. Only source of water is well and rain; the well I don't know the capacity yet. There's not enough water to irrigate which would help to get me higher yields.
Do you farm? I'm all new at this and have lots of questions. I'm managing it myself from a distance for now. I don't want a manager, one more layer of hassle, more expense, and the issue of trust. Am handling it ok so far, but I've been reading and crunching numbers like crazy, the best and highest use for me with my variables. There's risk no matter which way you go unless I cash rent, and I opted not to do that either.
Your profile page doesn't indicate what state you're in.
But, if your state has a land grant college (i.e., an ag school), the extension service can be a big help. A wealth of information and honest opinions.
No, I never did set up a profile page, didn’t think of anything to put on it. I think there are several of those around. There’s also a good state univ website where I read a lot on it, and we do have an extension service in my area. Our local one would be a good place to start, have only contacted them about gardening issues in the past. Thanks!
I was watching a 60 minutes clip that was talking about the last spike in gas costs. Huge influx of speculators led by Morgan Stanley. For each barrel of oil delivered, there were 27 barrels traded. Demand had gone down, supplies were fine yet gas shot up to $4.50 a gallon. The government threatened to start calling people to testify and the speculators fled the market.
Yes I had heard that, and it has also been suggested that if the President would threaten to pull out some the the Strategic Petroleum Reserve, the mere threat would serve to scare a lot of speculators out of the market. Meanwhile, the news today is that Americans have started driving less, based on a credit card company charges survey. I know I have and I encourage everyone else to do the same.
I don’t currently farm but hope to do so in the future.
I want to trade my desk for a tractor. ;-)
My son wanted to farm it for me, but I said no, there is a steep learning curve, not in driving the tractor but buying them, maintenance and knowhow with the rest of it.
There are tax incentives and programs for new farmers though. I didn't read thru it because it didn't apply. May be investment credit on the tractor and machinery, too, plus accelerated depreciation which can get very complex.
Download the Farmer's Tax Guide, pub 225. Recommend the following link, too. Income Tax Management for Farmers 2010.
http://www.agecon.purdue.edu/extension/pubs/taxplan2010.pdf
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