Friday, January 28, 2011

Historical Montana Farm Real Estate


Click to enlarge.

I have added an exponential trend line. I think it is appropriate here because there really is a finite supply of farmland in Montana. Over time we would therefore expect to see the value of farmland rise faster than inflation overall. In this case, the trend shown in red has been a reasonable 1.4% over inflation (as reported by the government in the CPI).

This most recent bubble is very impressive. Just look at the steepness of the ascent. Wow. That said, perhaps most of the damage is done. 2010 prices were unchanged from 2009. Those who hold this farmland over the long-term and can actually make productive use of it should do okay in my opinion. Know that you would be likely be paying a premium though.

Federal Reserve System

The Federal Reserve System (also known as the Federal Reserve, and informally as The Fed) is the central banking system of the United States. It was created in 1913 with the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907.

Thank goodness we don't have any more financial panics. Mission accomplished!

Here's an interesting article worthy of a read.

Mike Duffy
2010 Farmland Value Survey Iowa State University


We need to watch the land values and be prudent but I do not think we need to be overly pessimistic there will be a crash in values. In 2009 land values dropped slightly. This shows there is still discipline in the market. There may be a speculative bubble that impacts land as an investment but for now land still remains a good investment.

I think that's a fairly balanced way to look at it. However, Iowa's prices have not corrected like Montana's prices have. It would therefore seem likely that there is more downside risk.

The article provides a decision tool to compare the economic and financial impacts of purchasing a parcel of farmland. You might want to check that out too.

Source Data:
NASS: Montana Farm Real Estate Values
NASS: 2010 Farm Real Estate Value by State

8 comments:

GawainsGhost said...

Yes, well, white was just a color until Ahab became obsessed with a whale.

It's not the land that has value. It's the farm. The former is dirt; the latter produces a crop that can be sold. If you understand the futures market, that is.

In other words, it's now what you own. It's what you do with it that matters.

Stagflationary Mark said...

GawainsGhost,

I grew up in a small farming community of just 800.

I know just enough about farming to know that I know next to nothing.

There's no way I could compete with effectively with farmers who had done it their entire lives.

Fed cautions about farmer debt load

Briggeman says “low interest rates and robust farm income” have kept “financial stress from spiking for the average farm operation” but that could quickly change.

Thanks Fed!

getyourselfconnected said...

Tim Iacono moved to Montana. "A River Runs Through It" was set there. Other than that, I have no idea about that state.

Stagflationary Mark said...

GYSC,

Montana

Montana has several nicknames, none official, including: "The Treasure State" and "Big Sky Country," and slogans that include "Land of the Shining Mountains," and more recently, "The Last Best Place."

There's treasure there apparently. Not sure where they are hiding it.

And don't even get me started on "Big Sky" theories, especially if I am on a flight to Montana to check out their shining mountains. It might end up being my last best place to crash, lol. ;)

dearieme said...

Does the owner of Montana farmland automatically own the mineral rights? Or are they traded separately? Or do they belong to the State?

Stagflationary Mark said...

dearieme,

Here's what I found concerning mineral rights in my state.

Land Owner Vs. Mineral Rights in Washington State

Some states permit split estates in which there is a separate owner of the mineral rights associated with a piece of property. Washington has set up safeguards to protect the surface land owner from damage caused by exploration of the mineral rights. The state has also established a procedure for extinguishing mineral rights in favor of the rights of the surface land owner.

Who Struck John said...

Mark, the difference between the correction in Montana farmland prices and the non-correction in Iowa farmland prices is that we subsidize corn via ethanol subsidies, but we don't subsidize wheat to anywhere near the same extent ... and to the extent that we subsidize converting corn into ethanol, we penalize livestock operations through higher feed prices.

Stagflationary Mark said...

Who Struck John,

Thanks for sharing that. Figures.

Here's some charts showing exactly what you are talking about.

Market Clippings: US Crops - Where Are They Grown?

Corn is centered right on Iowa. Montana does indeed grow a lot of wheat.