“When Goldman Sachs shows up at an auction, I’ll know it’s time to get out,” he says. Those are wise words indeed.
Regardless of who’s buying, the ground still has to cash-flow. While no one knows what commodity prices will do, they’re not dropping back to levels of a decade ago or even five years ago. But input prices aren’t going to drop off either.
Profit margins will narrow and if the investors find a more lucrative investment, they’ll bail out and farmland values will decline.
Remember, too many homeowners naively thought houses were risk-free and that they only increased in value. The farmland market isn’t immune to getting swept up in a similar euphoric wave.
Farmland values will someday soften and even turn south, just as you can bet on interest rates again turning higher. However, this time farmland may not fall as hard.
The point is to look very long term and at what kind of value is tied to farms. The world will use more oil not less, and that keeps ethanol in the money. Globally, people will demand more food, not less. China alone will consume significantly more corn and soybeans, not less.
The one thing there’s destined to be less of is—arable land.