Hot Topic: The Pros & Cons of Buying Land Today
The prospect of $3.00- or $3.50-per-bushel corn and $7.00- or $8.00-per-bushel soybeans for the foreseeable future doesn't exactly inspire the greatest confidence when looking at making a big-ticket buy on your farm.
The pace of farmland sales is typically a barometer for the health of the corn and soybean industry in the Midwest. On one hand, brisk sales and high prices mean farmers are generally doing better than OK. However, if sales are slow and prices stagnant or slipping, it could be a sign of eroding farmer confidence in income potential. If a recent discussion of a possible land purchase is any indication, the latter camp is winning the battle for hearts and minds in corn and soybean country.
"I know there is never a guarantee on success, but I am having a tough time pulling the trigger. I know I need to put my big boy pants on, but it's tough paying $6 price for land when corn isn't $6," says Agriculture.com Marketing Talk member SwMn. "It would be tough to not have it in the operation, but I am very worried about locking in a higher-than-rent payment for a long time."
Some farmers make the case that if the land is right and fits in well with your operation, you should buy at all costs. After all, land is land, and sometimes the chance to buy a certain piece of ground may literally only come along once in a lifetime.
"The only farm I regret buying is the one I didn't buy. If you look at land in foreign countries, the good ol' USA is pretty cheap yet. In my area, if you don't buy, there will be six or more in line to buy, so you've got to be hush-hush until you have a purchase agreement signed," says Marketing Talk contributor crophugger. "There is also a big push from large dairies, cattle feeding operations, and swine facilities. Some of these boys have some big money backing them. I'd say go for it: Nothing better than walking on your own dirt. Gives you a little more incentive."
Yet, some say that's a tough argument to make when it comes to the balance sheet. Buying land right now is only possible if you've got that balance sheet in the right position, adds Marketing Talk adviser Mizzou_Tiger. Being ready at all times to pull the trigger can make a land deal happen where it ordinarily might not.
"There is no secret decoder ring to buying ground. Everyone's situation is different. That said, there are two things that can get you ahead. You need cash or equity, and lots of it," he says. "And always be quietly looking. Everyone who is serious about buying ground finds their own way to make these two things happen."
That's the pro-buy side. However, there are just as many on the fence about buying land right now as there are encouraging it. Some acknowledge the troubles diving into such a big-ticket purchase right now could create under the current circumstances, namely grain market prices that are showing no signs of bullish life. In some ways, how you see those circumstances as factors in your farming future are just as important as the circumstances themselves, says Marketing Talk adviser time:thetippingpoint.
"Most of success is found in attitude and reaction to adversity. If you buy the land and you face additional adversity from low prices or low yields or health, etc., will you always look back at this decision as the one that caused it? If so, let it go," he says. "If not, buy the farm, reduce your salary to make the payment equal to rent, then find other ways to earn back your salary."
A lot depends, too, on what you plan to do with that land purchase. Are you in it for the long haul? If so, though it may not be the best time to buy, now is not the worst, either, time:thetippingpoint adds. Though devaluation is imminent, he says, so too will be a cyclical move back higher down the road.
"Over the next five years, land could and should easily drop 35% in ag-only areas. Everything goes up and down, for goodness sake," he says, adding that he recently bought land adjacent to an existing farm. He admits, however, that right now is "a really bad time to buy a farm. We would just put it on our financial statements at 75% of what you paid. If you need the collateral to remain stable after a 25% haircut on its value, then you definitely have to walk."
On the con side, some farmers say right now is a good time to stay on the sidelines in the farmland market. If you do so, you won't be the only one there, and that means the buying opportunities of today won't necessarily be out of the question once the farm markets start to rebound down the road.
"The way I look at it, if you buy a farm and interest rates go to 9%, and cash corn is $2.50 for five years straight, would you be in danger of going broke? I understand that farms only come up for sale once in a generation, if you're lucky. But don't fall in love with something that can't love you back," says Marketing Talk adviser BA Deere. "It's just dirt. There will always be dirt for sale; maybe not next door, and maybe you pass on this one, but another better deal may come up in two or three years."
Marketing Talk contributor ihtractortherap says he's lost farms before, but did so willfully. He said though it was not the most pleasant experience, he feels he's better off passing on buying again too soon and feels he's ready to jump back into the market when conditions improve.
"I didn't want to work for the bank for the next 25 years. Had a fair amount of cash to put down, but didn't want to sacrifice liquidity. The bank said they'd take other land as collateral, and I said, 'No, thank you.' It was very emotional for me, as I had farmed the farm for over 25 years," he says. "Land should get cheaper. Keep your powder dry unless you have a boatload of cash that needs a home."
What do you think? Jump in on this hot topic: Would you pass on the farm?