Alton, Ia | Reality speaks - 5/3/2024 20:51
The bulls will never believe it until its too late. The economic calculus on land values has not changed. Cash return divided by cost of capital = land value. cash returns are going down and cost of capital is going up. does not equal land values going up or holding steady.
Average cash return on Corn Soybean grain farm in the prime area of the corn belt assuming 50-50 rotation is about $350/ac 10 year t-bill (4.50)plus 125 basis points margin = 5.75% cost of capital = $6100/ac not $16,000/ac So tell us land bulls what is going to change to continue to justify the $16,000/ac + land sales?
Oh and I want just one to say that its different this time.
I'm not saying I believe any of the following, or ANYTHING related to climate change, but when you are being told A.) that carbon capture/ low CI score grain, etc, is going to give you double the profit, and/or B) that renewable diesel is the next big thing in grains, even bigger than the 06 ethanol RFS impact and/or C.) that windmills are going to double your return, then you will do whatever you can to get the ground bought. We are pricing ourselves out of the world market and the only thing supporting this house of cards is government subsidies relative to climate change.
To your point, my math agrees, $6500 ground. Do the math on what it would take on paying for $25,000 ground at 7% interest and it is astronomical, both in yields and prices. But this time is different. hee hee.
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