Spring has sped up our lives. Reading has necessarily slowed down.
Julie was out of town this week at a (Vendor name has been censored by the FDA)
convention… meeting… gathering…thing….leaving me with the farm, my job, the kids, no food and even less time to read.
But I did do a little reading. Dad sent me a text on Thursday suggesting I read the new FOFOA. Now, before I give you a link let’s be clear. I’m not a gold bug. I’m also not a dollar bug. I might be a cow bug. I’m certainly a family bug. I mean, my kids are a pretty good basket to put all my eggs in. But I find FOFOA fascinating. His solution to all the world’s problems is gold. And maybe it is. But the thoughts he puts into each post is very interesting. He had a series over the last few years about learning to think like truly wealthy people. If you earned 100 million dollars every day…well, what would you do? It’s a difficult question for the house of Saud to deal with.
Anyway, fun stuff.
The post dad had me read this week was titled “Death and Taxes“. Now, I’m not interested in using my farm blog as a political platform and I’m fairly certain FOFOA feels the same. But there are important considerations. Let me give you an example that relates to FOFOA’s post.
The last time the 80 to the north sold grandpa bought it from his uncle for $10k. That was somewhere around 1950. 65 years later the same land sold for considerably more money. What happened to send land prices from $125 to current levels? What does it mean that the average land price in Illinois is listed at $7,520?
Is the land 60x more productive than it was in 1950? Can it raise 60x more cattle? No. It grows nearly 4x the corn though…at 4x the price. So that helps. But are we 60x more wealthy than my grandfather was in 1950?
I’m going to say no.
Oh, there are lots of things around that improve our lives. I appreciate modern medicine and, obviously, the internet. But that’s not what I’m talking about. Are farmers wealthy or do they just have a lot of money? Or do they have any money at all? Is it all tied up in land at absurd valuations?
I don’t know.
But I do know the average productivity gains have not kept pace with average land valuations. So what gives? Is it simply that the dollar buys less land than it used to? Obviously. But what does that mean? Did land go up or did dollars go down? Or both?
I believe even FOFOA would concede that gold offers no real frame of reference because paper gold trading has thrown that market out of whack just as artifically low interest rates have thrown real estate investment out of whack. So what is real?
Are cattle prices real? Dunno. Let’s look at Aunt Marian’s tax records from 1950 shall we?
They bought a cow in 1948 for $190. They sold it in 1950 for $200. I have to assume there was a calf or two along the way but let’s ignore that. I don’t know what kind of cow it was. Let’s imagine it’s a Hereford that weighs in around 1,100 pounds (cause they were smaller then). It would be nice to buy a cow for $0.18. Today (April 2015) that would be more along the lines of $1.51.
What gives? Well, lots of things. Drought out west has driven the brood cow numbers down. And dollars really don’t buy what they used to. That’s the intended consequence of inflationary monetary policy. I’m not saying it’s good or bad here, I’m saying we need to understand how the game is played so we can try to win.
Are cattle overpriced? Dunno.
Are dollars underpriced? Dunno.
Are $4 eggs cheap or expensive or priced just right?
That I do know the answer to. $4 eggs are cheap. Nobody bats an eye at that price. Nobody. A man once told me he raises his price enough each year to lose 20-30% of his customers. Wow! WOW! But that’s a price the market will dictate…even if he creates his own market.
But what is the market on land? What is the market on cattle? What is the market on dollars? Are these markets functioning correctly? Dunno.
What does any of this have to do with the FOFOA post?
What do these prices mean? Am I rich because I have thorny trees in my pastures and holes in my perimeter fence? No. But I have land and, somewhat accidentally, suffer a higher net worth for reasons I don’t sufficiently understand. Right place at the right time maybe? Look in from the outside you might envy the value of our farmland today. But 50 years from now when the kids are picking just the right spot on the next hill over to park a rock with my name on it what will land be worth? Will the envious be satisfied? Will land prices bottom out just as I pass showing a loss on the estate over time?
But I do know that between now and then I have an obligation. I have to build real, lasting wealth. I have to cut thorny, unwanted trees. I have to plant productive trees. I have to build ponds. I have to spread manure. I have to take what I have and make it better for my children. Because this is theirs. I have to nurture my relationships with my children. I have to grow emotionally, spiritually and …and… (what’s the word for making yourself more smarter?). That’s wealth that can’t be taxed away. And all of that…all of it…counts as what FOFOA was describing. It’s savings. I’m saving fertility for the future. I’m putting off gratification today in favor of a better future, never putting my faith in the paper value of my assets. Instead, we value and leverage for just what it is. A child. An apple tree. A cool evening walking through the pasture.
I plant seeds. I pray. I work to protect my harvest from bugs and decay. Some loss is inevitable but I do my best. That’s what farming is.
Julie read this post and had a few suggestions and thoughts. First of all, she pointed out that we have to pay $300 in property tax (same as rent) every month for the privilege of owning the land. Does the farm generate a return on that? Nope. I have a job in town. So why do people buy farms?
Well, I’m sure there are some farmers who actually own the land they farm but not the current majority…imo. Most “farmers” are renters. They rent land that is owned by someone else…someone who earned buying power elsewhere and needed to park that in a vehicle that is relatively illiquid and relatively safe. Farmland.
So with that in mind do current farm prices reflect current farm productivity and profits or do they reflect expected future valuations based on the hope of gains and the indication that dollar purchasing power will continue to decline?
I don’t know. I know that I am paying a high price to live a certain lifestyle. To give my children opportunities that statistically zero other children get. All while working the same ground my family has worked for nearly 200 years. And I know the tax man cometh.
Am I making sound business decisions?
Probably not. But we are eating well.
I like FOFOA’s idea of value addition. We have little to no input on how value is added to our land. Others think they are helping, when they are actually making the situation worse, food and clothing to Africa. But that again is out of our control.
Farm land valuation is funny to me. Brother in law bought land at $1000 an acre planning on planting grapes. Scratched and clawed and borrowed to plant first acre. Then land jumped to $100,000 an acre in value because he received the last permit the county issued to clear land for vineyards. Sierra Club lawsuit involved in that change. Now he has unexpected value, but still no grapes. The value helps in getting loans to plant more grapes, but how many acres does one plant without borrowing too much “value” and hurting the farm?
It seems to me that we all have to make decisions about how we want to live. If it’s farming, what do we do that makes the farming possible? If that means we work off farm also, then we decide if it is worth it for the lifestyle.
Your post has been mulling over in my brain for three days, with me trying to grab a hold of it.
Thanks Steve. I’m still wrestling with it too. Writing the post allowed me the opportunity to put some thoughts down but I find I have to read FOFOA several times before I really it…if I get it at all. Is there a dollar value for my farm? I mean, beyond what I owe to the bank. Would I sell? Could I emotionally handle selling my farm? What would I do with the money? Just spend it on consumer junk?