The concept of farmland being "for sale" at all seems bizarre. This isn't someone's home. Raw land is effectively always for sale, just contact the owner and make an unsolicited offer.

Is this just a psychological issue of people being attached to certain parcels or is there some other factor?

I'm guessing you didn't grow up on a farm.

There will always be some farmland effectively for sale; but there will also be other farmland which will never be for sale, no matter what the cost. The latter are generally "homeplaces", which have been in the family for generations. Heritage, blood, sweat, and years of hard work bind you to the soil, the land. It's more than an emotional attachment--it's almost spiritual, almost core identity.

It's an essential part of you and who you are.

It is amazing to see the effect of this in the wild - the land owns the people and it is basically impossible to sell. I have seen people who own land worth 10s of million of dollars live like paupers because they are so tied to the land.

I have wondered how much this effect is genetically built into us - there really is something different about how people view farmland compared to every other asset.

Farmland is essentially a complete livelihood, whereas other land is just a place to park a house.

Yes, but so is a business and it doesn't seem to induce the same type of ownership.

To be honest, I'm willing to bet that the sense of history you get with a multi-generational family farm, probably is matched in other multi-generational family businesses as well.

(However, most businesses don't have the option of the ultimate fallback of subsistence farming if times got really rough. :) )

A business supplies you with currency to trade for the basic necessities. A farm can provide those directly.

Or a wind turbine.

Beautifully said.

You can make an unsolicited offer to homeowners too. In both cases, something being "not for sale" means the price should be higher because there are large transition costs with unexpected moves.

No way. Land has low carrying cost and people will sit on it for years to speculate or hold neighbors hostage.

Part of this is that a lot of states have agricultural exemptions or lower rates for farmland. Even if it's not effectively farmed. Or McMansions in the countryside exploiting the same law via what my dad called "Noah's Ark farms" (just two of every animal).

So yes, if you want to game the system and sit on land, there's little tax incentive to sell it.

In the UK this is doubly true, because you also receive your subsidy from the EU for owning that land. In fact in many ways farming it less efficiently gets you more as you can qualify for environmental uplifts for using less fertilizer and keeping bigger headlands and hedges.

It's worth metioning that this distribution system is decided by the UK government (or possibly Eng/Scot etc governements). The EU allocates subsidy to the member nations according to one system (not accounting for e.g. bigger hedges), which allocate subsidy to farmer/business according to their own system. It is entirely possible for the UK government, within the EU, to allocate money to farms as an insurance system against bad years, or to encourage profitability at all costs, or in another way.

In theory, does land appreciate at the risk-free rate? Or does holding land mean that you lose the opportunity cost of what you could have otherwise done with the money?

No, there is lots of risk in land, particularly if you borrow money to buy it!

People have different risk evaluation and time horizons. If you are sitting on a lot of capital, it’s a no brainer to buy land when financial bubbles pop and leveraged owners need to unload cheap.

Not only do you have a long term inflation hedge, but it’s real property, which means you can borrow against it to get cash without paying taxes via dividends or sale.

Iowa is great for investors like this because the whole state is just a big corn factory. The government tries to keep commodity prices less volatile, so you can project lease income with some precision using the value of corn.

> 7k+/acre

Assuming this is pure farm land (no premium for possible annexation or commercial development), is that not an absolutely batshit insane price? I'm no expert but that seems at least 4x what is reasonable.

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)

The 7k price would be for good land with quality soil and a high Corn Suitability Rating. But yes, 7k+ is certainly normal for Iowa. (The surrounding midwest states like MN, ND, IL and WI would be lower - in the 1-4k/acre price)

There has been some land in Iowa which has still sold for $9-10K/acre this year. Very good CSR. But it's definitely not the norm anymore. $7-8.5k/acre seems to be the range.

I have family that own and operate farms in Kansas and Iowa, and that's pretty much on point. Good quality farmland pretty easily goes at $6k an acre, with really high quality riverland going for up to $10k.

It is high, but typical. With rent around $200 an acre, land only generates around 3% annual cash flow at that price. And even that rate is killing farmers right now.