How much can you pay

[WichitaLineMan]

Also on my picture posts, I'd say about half are on land I own and half on leased ranches.

 

[Idaman]

"HOW MUCH CAN YOU PAY?"

If you are borrowing 100% and don't have cows, equipment, and a good paying outside job, probably 0.

If there is a rule of thumb that you can't afford more than $1000 in debt per cow unit then the cows and equipment alone will exceed that. The only half way reasonable $/unit prices I see are good farm ground that will carry 1cow/yr/acre that is selling for $2000/acre. These "good" deals must really have the water costs checked into or your yearly cost could be prohibitive. The other catagory are ranches with lots of federal or state ground attached through grazing permits. Some of these, located in horrible places to live, are still fairly reasonable.

Our MO has been to buy ranches that are in trouble for whatever reason but usually to settle estates or reposesstions etc. Unfortunately they usually are in not the best state of repair but basically good ranches. Fix them up, make whatever repairs they need, turn them into a good looking going concern and then put them on the market at whatever the market will stand. Next take the sale proceeds and 1031 them into a property like you started with and do it all over again. You still can't do this on borrowed money because the repairs and interest while waiting for the sale time can eat you up. It also takes an eye for what some can be made into.

I also heard that the land prices on sub-division land may not continue to rise because generation x has a lot less people to buy that the older generation has to sell. When the present older generation decides that they need to move back to town for health reasons there could be a lot of properties come on the market but many less potential buyers.

 

[fargus]

Idaman,
You raise a good point regarding development land on the edges of urban centers. I had never heard that viewpoint before, but it does make sense.

As to the original topic, my answer would be it depends. Land values around here are too high to pencil out with borrowing 100% of value of the land. The way most operations purchase land (cattle or cash crop outfits) is to have a good enough year to put a downpayment on the ground big enough to make the mortgage payments cash-flow friendly. Obviously this requires a certain size to get to a point of "critical mass." Most of these operations are either expanding an existing cow-herd, or run stockers. So they aren't borrowing money to purchase cattle. (Unless they borrow money every year to purchase stockers/backgrounders/grass cattle.)

This is still purchasing on spec, and assuming that the value of farmland will continue to rise. To put things in perspective though, 15 years ago a brand new combine with headers was worth about $250,000. So was 100 acres of prime land in this area. Now that same 100 acres is worth about $500,000, and so is the new combine. Difference is you get the crap kicked out of you on the depreciation of the old combine, had to trade in and buy another new one. The land appreciated, and you didn't have to trade in and buy new.

Bumps in the road are more common than we like to think, but I think brandon hit the nail on the head when he stated that land values will trend up in the long term even if it is just a reflection of inflation. Cash-flow is king, but history would show that land as a pure investment has been a good one.

 

[bigbull338]

but then you have to figure in those that wont sell family land at all.we are lucky that where we live family owns most all the land.theres only 3 people other than family that owns land close to us.an i dont think that land will ever be for sale again.but if it was id love to try to buy it.

 

[Jake]

I'm going to throw a little economics at this and see if anybody can follow me. Agriculture in general is a "Zero Profit" game. In aspect to ECONOMIC Profit. We are all competing for a scarce resource in land in order to produce our goods. With the way agriculture is set up we have as close to a Perfectly Competitive market as you can get. The stipulations to Perfect Competitiion are -
1) Homogeneous Product
2) Availability from variety of sources
3) Perfect knowledge.

Now as far as the product and suppliers go in ag for the most part Yellow #2 Corn is Yellow #2 Corn everywhere and choice beef is choice beef. We all produce this homogeneous product therefore there is no market power held by individual producers.

Now ECONOMIC Profit is Business Profit minus Opportunity Cost and Opportunity cost on Owners Equity.

Cattle are just a means of adding to the Owners Equity and making a Business Proft. Very rarely does land "pencil out" when it is purchased with borrowed money. The fact is that farmers and investors alike rely on inflation and scarcity to drive the price of the land up to increase their Owner's Equity.

I could probably make a 20 page post on this but I'm sure I'm losing any interest that I started with so I'll put this in a short point.

As a producer we need to figure out what you can give for land to make long run ECONOMIC BREAKEVEN. This will vary with the availability of capital to your operation. If you can add to your assets and cover your opportunity costs. What you pay for the land is somewhat irrelevant.

 

[Idaman]

I'm going to throw a little economics at this and see if anybody can follow me. Agriculture in general is a "Zero Profit" game. In aspect to ECONOMIC Profit. We are all competing for a scarce resource in land in order to produce our goods. With the way agriculture is set up we have as close to a Perfectly Competitive market as you can get. The stipulations to Perfect Competitiion are -
1) Homogeneous Product
2) Availability from variety of sources
3) Perfect knowledge.

Now as far as the product and suppliers go in ag for the most part Yellow #2 Corn is Yellow #2 Corn everywhere and choice beef is choice beef. We all produce this homogeneous product therefore there is no market power held by individual producers.

Now ECONOMIC Profit is Business Profit minus Opportunity Cost and Opportunity cost on Owners Equity.

Cattle are just a means of adding to the Owners Equity and making a Business Proft. Very rarely does land "pencil out" when it is purchased with borrowed money. The fact is that farmers and investors alike rely on inflation and scarcity to drive the price of the land up to increase their Owner's Equity.

I could probably make a 20 page post on this but I'm sure I'm losing any interest that I started with so I'll put this in a short point.

As a producer we need to figure out what you can give for land to make long run ECONOMIC BREAKEVEN. This will vary with the availability of capital to your operation. If you can add to your assets and cover your opportunity costs. What you pay for the land is somewhat irrelevant.

Precisely in a nutshell.

 

[Third Row]

To the original question, if you are paying more than the cost of the lawyer's fees for transfering it when you inherit the land, don't expect cattle to pay for it.

 

[msscamp]

what i dont understand is how the cattlemen make it n states where u have 2 have so many acres per animal because of the poor grass.i saw an add 4 land where they had 2,500 acres and they said it would support 50 head.how in the heck u ever gonna make that work? in kansas u could run 50 head on 100 acres of grass.

Why would you assume that the high stocking rate is due to poor grass? A lot of times it is simply due to a lack of rainfall. Here in my area of Wyoming the usual stocking rate is 33 acres/animal unit, but the grass is usually damned good! Our stocking rate is due to the fact that we only get an average of 10" of rainfall/year, not poor grass.

 

[regenwether]

Very good thread! I can tell there is some educated people here!

Few things. Prices are always too high. Anyone here buy feeder cattle? :roll: Time always weeds out the poor managers. We as a group are always in the "glass half full" category.

Few things in this part of the Country that has put a floor on land prices:

1031- without a doubt has had an influence. Mostly because of the growing housing market. This has dried up for the most part because of the market "pop" in the housing market.

Ethanol: Something to watch! This has been a major factor her in Iowa and elsewhere. Watch what Congress does when the Ethanol Subsidy expires later in the year. They did not extend the Bio-Diesel subsidy last year. Personally I think it would be the best thing for the Industry. If Congress does cut it there will be some short term pains. Land prices will either stay flat of fall for a few years.

Hunting- I understand this is a factor in of parts of the Country but not here for the most part.

Land Availability: There just isn't much land on the market. This also plays an Influence. This again will change because the Average age of the farmer here in Iowa is somwhere in the 60's.

Interest- My brother just bought a House on a 30 yr fix @ 4%. He payed 40 grand more than his old house yet his payment are only $40/month more. Great time to buy in that respect. (Perhaps it is the time to buy a house or an apartment?? :lol: )

I'm going to just keep plugging away and buy when something comes up. This is a Family operation and have no plans on selling.

 

[dun]

We do it even smipler and it doesn;t matter if it pencils out or not, PAY CASH

 

[JHH]

We do it even smipler and it doesn;t matter if it pencils out or not, PAY CASH

That is kind of what I was saying earlier. Lots of old money being spent on ground. Better than a CD or anything else at this point. I just wish I had old money to spend.

 

[TexasBred]

We do it even smipler and it doesn;t matter if it pencils out or not, PAY CASH

That is kind of what I was saying earlier. Lots of old money being spent on ground. Better than a CD or anything else at this point. I just wish I had old money to spend.

So true. At $5000 an acre a small nestegg doesn't buy much more than a garden spot.

 

[dun]

We do it even smipler and it doesn;t matter if it pencils out or not, PAY CASH

That is kind of what I was saying earlier. Lots of old money being spent on ground. Better than a CD or anything else at this point. I just wish I had old money to spend.

So true. At $5000 an acre a small nestegg doesn't buy much more than a garden spot.

But after 50 years of doing it from tiny to larger that small nestegg grows to a pretty decent size. I'ld like to buy Basin but 12 mil is way way out of my league

 

[Idaman]

The only way a cowman can buy Basin or something like it is to sell something of like value although there are places I like quite a bit better.

 

[WichitaLineMan]

Make an offer:

 

[Idaman]

Make an offer:

Too cold and windy for me although great summers.

Just look at that windbreak fence in the last picture. That makes me shiver.

 

[TexasBred]

But after 50 years of doing it from tiny to larger that small nestegg grows to a pretty decent size. I'ld like to buy Basin but 12 mil is way way out of my league

I don't want to sell anything tho in order to buy bigger. I just buy and hold.

 

[MF135]

what i dont understand is how the cattlemen make it n states where u have 2 have so many acres per animal because of the poor grass.i saw an add 4 land where they had 2,500 acres and they said it would support 50 head.how in the heck u ever gonna make that work? in kansas u could run 50 head on 100 acres of grass.

Why would you assume that the high stocking rate is due to poor grass? A lot of times it is simply due to a lack of rainfall. Here in my area of Wyoming the usual stocking rate is 33 acres/animal unit, but the grass is usually damned good! Our stocking rate is due to the fact that we only get an average of 10" of rainfall/year, not poor grass.

do what???? The fact that the grass only gets 10" is what makes it "poor".

 

[RD-Sam]

I don't know about the collective wisdom around here.

Home Real Estate in many parts of this country have fallen 30+% over the last 2 and 1/2 years. And Commercial real estate has fallen more than that, but you guys are pretty sure Agricultural land will never fall in value?

Very interesting.

Ag land has dropped in price, at least around here. My first piece cost me $2400 an acre, after the market fell apart, I bought the lot next to mine for $1700 an acre. The guy on the other side of me has been trying to sell at $3000 an acre for almost two years, no luck. I'll probably buy that when he gives up and lowers the price.

To me, it's nothing but a huge money pit right now, no way the cattle can pay for the land, clearing, and fencing, much less pay to buy cattle too. Someone getting into the cattle business with nothing has a hard row to hoe. I'm just trying to pay it all off by the time I retire and collect a little revenue off of a herd and property I am building up.

 

[AudieWyoming]

Rain and tall pretty grass doesn't make it "good grass". We get 45"-50" of rain/year on the prettiest grass you ever seen down in Alabama. It grows 10 months/year and the cows can't keep up with it, but the cows always look like they need a bisquit.,,

That short grass in eastern wyoming is some of the best cattle country there is. Its dry and brown all but about 30 days out of the year, and you swear the cows got nothing but rocks and a snow bank to eat, but the calves always come in big n fleshy. @
If your cows have a few oil wells to rub on they do even better. :cowboy: @

what i dont understand is how the cattlemen make it n states where u have 2 have so many acres per animal because of the poor grass.i saw an add 4 land where they had 2,500 acres and they said it would support 50 head.how in the heck u ever gonna make that work? in kansas u could run 50 head on 100 acres of grass.

Why would you assume that the high stocking rate is due to poor grass? A lot of times it is simply due to a lack of rainfall. Here in my area of Wyoming the usual stocking rate is 33 acres/animal unit, but the grass is usually damned good! Our stocking rate is due to the fact that we only get an average of 10" of rainfall/year, not poor grass.

do what???? The fact that the grass only gets 10" is what makes it "poor".