At the end of the day you still have your ground though. When land breaks and your ETF fails, what will be left. Because at end of the day, these are the hedge fund guys coming into Iowa buying way over market, leasing back to farmers - when these type of investments are more sentimental for farmer moreso / how can a hedgefund make any money on it without constant land appreciation (in a market already below breakeven)
Farmland
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At the end of the day you still have your ground though. When land breaks and your ETF fails, what will be left. Because at end of the day, these are the hedge fund guys coming into Iowa buying way over market, leasing back to farmers - when these type of investments are more sentimental for farmer moreso / how can a hedgefund make any money on it without constant land appreciation (in a market already below breakeven)
Its 50% emotional attachment to the business many have built themselves and within their family and 50% greed / wanting to look bigger than neighbor
Before investing find out the following:
1) What is the soil quality on the farm (CSR2 value)
2) Is the land under a HEL / wetland determination plan.
3) When does the CRP contract expire.
4) What are comparable sales in the area.
5) Find out property taxes and liability ins for the property.
6) Inspect the farm ( walk it ) and see what condition the CRP seeding is.
7) Visit the local court house to see if the farm is part of a drainage district, and if so check if the farm has any projects / improvements you will be responsible for.
8) What is the tile drainage system condition (private or public)
9) Who will you hire for improvements - example mid contract management plan on the CRP
10) Is there any soil fertility records.
11) Who will receive the CRP payment on the first year of ownership. Most contracts start Sept 1, thus if you purchased on June 1, you may need to share the first year payment with the current owner.
1) What is the soil quality on the farm (CSR2 value)
2) Is the land under a HEL / wetland determination plan.
3) When does the CRP contract expire.
4) What are comparable sales in the area.
5) Find out property taxes and liability ins for the property.
6) Inspect the farm ( walk it ) and see what condition the CRP seeding is.
7) Visit the local court house to see if the farm is part of a drainage district, and if so check if the farm has any projects / improvements you will be responsible for.
8) What is the tile drainage system condition (private or public)
9) Who will you hire for improvements - example mid contract management plan on the CRP
10) Is there any soil fertility records.
11) Who will receive the CRP payment on the first year of ownership. Most contracts start Sept 1, thus if you purchased on June 1, you may need to share the first year payment with the current owner.
The new owner can decide if they want to keep the contract. If they don't, every cent, including cost share, paid on the contract would have to be repaid, with interest, and a 25% penalty. Unless specified otherwise at the time of sale the previous owner is responsible for paying it back.
Also, there will be mid-contract management to do, probably starting in 2020 for this particular crp , where you would have to burn or disc.
Land in NW Iowa is still bringing $12,500 but definitely down from when it was over $15,000. Agree it's hard to pencil it out at those prices.
Just burn it. I have a friend who has a business doing just this (CRP Services, LLC). The CRP program will reimburse the landowner 50% of the cost to burn if the burn is completed by May 14.
community and regional planning major from ISU!
just got my notice that vanguard basic bond fund is paying 3.04%. That's a lot less headache than dealing with land for nearly the same return. again, if the idea of owning land is important than do it. don't do it for investment reasons.
There are also risks with bond funds which you don't have with farmland. For example, you have duration risk with bond funds which is definitely a big deal right now with the expectation of rising interest rates of the next few years. With bond funds, you can have a negative return based on the market interest rate.
To be fair, you have plenty of risks with farm land as well and if you finance the land purchase you are likely going to have a negative cash flow and very little if any net return. At the end of the day though, you do have the value of the land itself to fall back on. I wouldn't personally invest in farmland as a primary investment strategy, but I do own 52 acres as a nice safe asset that brings me a nice 3-4% annual return now that I have paid it off.
my father in law owns 60 acres as part of his home. no farming, just recreation land. nice stream, timber, and a few hills which makes it very pretty. that's the only land i'd buy - you own it because you enjoy that lifestyle and don't have to worry about returns.
And what is that? One of those pay to not plant programs. I have to say as a city-guy, I've never understood that concept. Of course, I've never really tried to understand it either. Hence my questions.
the purpose is to establish long term ground cover and protect soil and fields. Iowa has the most "changed" landscape in the entire country and the CRP program aims to put more land back into a natural state. Since farming is lucrative (?) the state pays people a comparable amount to not farm it.
it makes sense and i support finding ways to protect our land.
on the other hand, we also have agricultural subsidies and crop insurance which encourage people to farm and only farm certain crops. there is a reason why iowa is heavy in soybeans and corn - those have the most federal and state protection. in essence, we subsidize people to grow very specific row crops and pay others to not grow those same crops. it's very odd.
Read this, it will give you a little history behind CRP and one of our own Iowa Staters
https://en.wikipedia.org/wiki/Henry_A._Wallace
Read Secretary of Ag section
So more New Deal government hand-outs. Great. Farming is a difficult business because it is a Very high capital business, at least these days. Combine that with a perishable commodity with volatile pricing and you further complicate the business. It's very hard to manage that type of business well and honestly most small farmers just can't do that job well. They are simply under-capitalized.
IMO 3.5% on CRP isn't high enough - you can get close to that return on high quality tillable land in places.
I would look for 4+% ROI on CRP before investing in CRP land. 3.5% would be a good return on tillable farmland. In general, higher quality land carries a lower ROI and lower quality land carries a higher ROI, because there is a flight to quality for the buyer. In the housing world I would compare it to ROI on a "Section 8 Brian Ferentz special" being higher than ROI on town homes that are very nice.
I would also make sure the land is very "farmable" after it comes out of CRP. If it is going to stay in CRP forever you are going to limit your buyers and future appreciation.
Land is over-valued today in the current ag economy, making returns poor. I would want to be cautious and only buy something (from a pure investment standpoint) if is undervalued in today's market. Equipment values have gone way down, farm incomes are way down and even negative in a lot of cases. Land is the last thing to fall in a down ag economy because it is the most sought after ag investment.
I would look for 4+% ROI on CRP before investing in CRP land. 3.5% would be a good return on tillable farmland. In general, higher quality land carries a lower ROI and lower quality land carries a higher ROI, because there is a flight to quality for the buyer. In the housing world I would compare it to ROI on a "Section 8 Brian Ferentz special" being higher than ROI on town homes that are very nice.
I would also make sure the land is very "farmable" after it comes out of CRP. If it is going to stay in CRP forever you are going to limit your buyers and future appreciation.
Land is over-valued today in the current ag economy, making returns poor. I would want to be cautious and only buy something (from a pure investment standpoint) if is undervalued in today's market. Equipment values have gone way down, farm incomes are way down and even negative in a lot of cases. Land is the last thing to fall in a down ag economy because it is the most sought after ag investment.
someone help with with econ 101. if everyone says it's overvalued then why are people buying it at these prices? why isn't it going back down to $2,500/acre or whatever...
