Comment by froindt | Hacker News Reader

Comment by froindt | Hacker News Reader

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That's land in the middle of nowhere. If you're near a city you can get a nice premium as the suburbs expand. 4x is a bit extreme (been a long time since it was that much). But it's expensive.

In the middle of nowhere there have been quite a number of land sales with $10k+/acre in the past handful of years.

Farmland prices have been kinda crazy over the last 5-10 years.

As a quick example of some math:

* Rent prices for farmland in Iowa [1] averaged $230/acre in 2016

* Yield per acre for corn is 203 in 2016

* Price per bushel averaged $9.27 [3]

Throwing averages into the mix, $1,882 revenue per acre. Without any expenses, farmers could be looking at >5 year time to break even at a 10k purchase price as opposed. Tons of farmers are paper millionaires simply because of the land they own. 100 acres of 10k land gets you there. 640 acres is 1 square mile (much of the state is on a 1x1 mile grid of gravel roads).

And of course I found most of the work already done after I found a bunch of sources. [4] has some more detailed numbers.

[1] http://dreamdirt.com/blog/2017-iowa-farmland-cash-rent-rates...

[2] https://www.extension.iastate.edu/agdm/crops/pdf/a1-12.pdf

[3] https://www.extension.iastate.edu/agdm/crops/pdf/a2-11.pdf

[4] https://www.extension.iastate.edu/agdm/crops/pdf/a1-20.pdf

Wow! I wish I could have gotten that price for my corn last year.

You quoted the price for beans, not corn. Corn averaged 3.40 over the year (currently, around $3.05 cash, not CBOT). That means it was about $640/acre for income. And that's assuming 203 bushels for all farmland. 180 is a better rule of thumb.

Of course, when a bag of seed corn is selling for $275-300+...not to mention input costs of equipment, fuel, fertilizer, labor (including yours), land (purchase or rent), etc...

Oh crap you're right! The price seemed high, but I grew up in the city so I don't track it much - just whenever I catch it on the local radio station.

The numbers were way better than I remembered, so I kept trying to figure out where the costs came in...I wasn't finding it.

Thanks for the correction.

As someone who obviously knows the business, what's your take on the price of land, based on historic prices and on economics?

Just saw this.

As my late dad and other old timers said a few years ago, the price of land is tied to the price of corn. Land values (both purchase and cash rent) have fallen the past year or two from their high, slowly but steadily. From a pure numbers standpoint, land prices are still high relative to corn prices, I'd say about 2x as high as some historical years at this corn price (plus historical inflation). I'd like to see it down around $5K/acre in my area.

But there are other factors in the cost too, and that is how much people are willing to pay for land. And guys are still willing to pay for it at this level, although not as many as before. There's still profitability, if you play your cards right. But that's a whole other analysis.

That price per bushel is for soybeans, not corn. Soybean yields are much lower, like in the mid-50s to low 60s on average. The marketing year average price for corn in 2016 was $3.30. That cuts your revenue number to $670. With production expenses most farmers are lucky to break even right now.

What a strange world.....farmland prices in Canada are about a tenth of that, whereas if anything land prices for housing are typically at least double what they would be in the US (roughly adjusting for earning potential). Maybe we're just on opposite ends of a pendulum.

Canadian farmland has less potential value due to the reduced light and lower temperatures of the northern climate.

True, but 5 to 7 times difference, all things considered? That seems fairly unlikely.

With rent at $230/ac and land prices at $7k+, it's about a 3% annual return. So it's more like 30+ years to break even.

Assuming the land doesn't appreciate further. (and we are pretty sure it won't depreciate to nothing)

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