Wednesday, May 25, 2011

SPG Supplement: Is Farmland A Smart Hedge Against Inflation?

This piece originally appeared in the Strategic Planning Group, as a Supplement exclusively for Members. It has been edited for content.
So recently, the New York Observer ran one of its snooty, fawning pieces about hedgies in New York.

“So you’ll give me 2% of your money up front,
then 20% of any winnings,
plus you’ll eat all the losses on my bad bets:
Isn’t that a great deal I’m giving you?” 
Hedgies—hedge fund drones, essentially used car salesmen dolled up in Paul Stewart suits—are morons, for the most part; though they do display a certain rat-like cunning of the low-IQ variety.

That sharp-toothed rodent cunning was on display in the Observer story: These hedgies were boasting about buying farmland left and right, as a hedge against inflation.

So: Is farmland worth buying as a hedge against inflation?

This is a reasonable question.

Bottom line, the answer is: No.

The reason, however, is worth examining in some detail, because insofar as farmland is concerned, there would be a period of time when it is a clever investment, and then a point after which it would be a terrible investment. And as with everything in life, the dividing line between the terribly clever and the terribly stupid is as smeared and undefined as roadkill on an Interstate.

First off, farmlands produce agricultural commodities—which in an inflationary scenario would rise drastically in price. Thus one would think that owning farmland would be akin to owning a gold mine: A sure-fire hedge against inflation.

However, there are three caveats to this line of argumentation: One, farmlands—like any other bit of real estate—is dependent on credit. Two, the business of farming is cash-intensive, and requires sure-fire lines of credit in order to eke out razor-thin margins. And three, unlike industrial commodities or precious metals, agricultural commodities can spoil if they are not consumed; not all agriculturals spoil, of course, but enough that it affects the entire commodity class.

From the first two caveats, we can see how credit is such a key component in farmlands as an asset class, and farming as a business.

Therefore, if credit is restricted or cut—another banking crisis, say, or a sudden upswing in interest rates brought on by higher inflation—farmers cannot afford to buy the feed and equipment necessary to farm their land. This is an age-old problem that affects farmers even in good times. In a very high-inflation environment, credit would be severely restricted, if not cut off altogether, as banks and lending institutions would not want to give out loans: After all, inflation—not to mention high- or hyperinflation—eviscerates them.

And of course, as we saw in the SPG Hyperinflation Scenario, real estate prices fall—dramatically—during periods of high or hyperinflation, precisely because mortgage loans evaporate, and thus there are far fewer qualified buyers, which thus forces sellers to lower real estate prices even as inflation is making prices rise in commodities, necessities and consumables.

The third caveat—that agricultural commodities spoil if they are not consumed—is the reason so many farmers during high-inflation or hyperinflationary events do not plant crops. This makes complete sense, once you stop and think about it.

As prices for gasoline and other consumables necessary for farming rise, farmers do not have the cash to pay for these ever-rising expenses. So they don’t: They decide not to farm as much as they could, because they don’t have the cash for these higher production costs, or can’t afford the usurious interest rates being charged. The farmers are acting out of self-interest: They realize that it is better not to make money than to lose money.

(This, by the way, is how ever-rising rates of inflation become self-reinforcing among agricultural commodities: Prices rise, making it too expensive to plant crops, making prices rise some more.)

Even if the farmers were to go against their financial self-interest and sow these crops they can’t afford to harvest, once they somehow manage to harvest the crop, it is likely that they will not be able to send them to market. The reason is, transportation and other marketing costs in a high-inflation or hyperinflationary environment would have made it prohibitively expensive.

Thus the harvested crops would sit and rot, never reaching the market while hyperinflation is raging.

So from a farmer’s perspective, planting and harvesting and trying to bring to market a crop makes no sense—better to save money, and hope for better times later.

This model of what happens to crops and farmland presupposes that high-inflation or hyperinflation have already arrived. But what of the lead-up to the hyperinflationary event?

This is an interesting situation: As inflation rises—but is still moderate, i.e. below 20% per year—agricultural commodities are an excellent hedge against inflation. Speculative anticipation that inflation will send food prices up makes market participants head for agros and bid up their prices.

The same with farmlands—market speculators go shopping for farmlands—

—and hence we have the New York Observer story, right on schedule.

Now, this speculation in farmlands will pump up, then blow off. When? When inflation trips over and becomes serious. As I demonstrated in the Scenario via-à-vis industrial commodities, certain commodities rise during the run-up in inflation—then dive as hyperinflation trips up higher.

Thus you can think of the following graph as illustrative of the prices of farmlands during a run-up to hyperinflation:

As inflation rises, farmland prices not only rise in lockstep—they outpace inflation, until a tipping point, where they then fall drastically because of the aforementioned reasons.

The Observer piece is well worth reading, because of what it indicates: Not only do sophisticated market participants anticipate high inflation, they are already moving into assets which they think will beat inflation.

These hedge funds will indeed look clever as inflation rises—but they will look exceedingly foolish if and when inflation turns abruptly higher, and leaves them holding the bag.

In and of itself, the bet on farmlands is not un-clever. The trick is timing: When is the moment to get out of farmlands?

Answer: Before high-inflation chokes off credit.
If you want more from where this came from, check out the Strategic Planning Group’s Preview Page.

48 comments:

  1. Jack in the PhilippinesMay 26, 2011 at 3:13 AM

    Two other factors the farmland bulls fail adequately to take into account: (1) water, which is becoming the limiting factor in many places, and (2) as prices go up food will be one of the first things to be hit with price controls.

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  2. It all revolves around credit. If the farmland is paid for the equation seems to change.
    gh

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  3. Yes but the for the farmers that are able to make it through the plant/harvest cycle due to having stockpiled, fuel, fertilizer etc, the produce will definitely be an inflation hedge as long as you can get the produce to market. So smaller farms within close range of local markets is the key.

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  4. the government can and well may raise taxes on land, or even sieze control for the "good" of the people struggling to feed themselves.

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  5. What about owning the land and leasing to farmers? You know, sort of like a feudal overlord?

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  6. You forgot to mention the global warming the corporations say doesn't exist. GW results in erratic and extreme weather. Right now the Midwwest can't plant new crops or save the old ones. Food prices were on the rise before extreme flooding, and so they will go even higher.

    You're right that large farms need a lot of credit for expensive machinery. I'd say think small, primarily for you family and neighbors.

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  7. Jack is right as prices go up price controls will be put in place, which will lead to shortages, which will lead to nationalization in an attempt to mitigate a self-inflicted famine.

    As a general rule the more important something is the more likely it will be brought under state control during a national emergency like a hyper-inflation event. A hyper-inflation event in the US would also lead to starvation around the world as our self-inflicted famine would naturally reduce the amount of food available for export.

    So farmland may still be good ‘investment’ but only in countries largely unaffected by the US hyper-inflation event that also have surplus food for export. Something tells me though they won’t be excepting dollars for that food though.

    Golden waves of grain might soon have double meaning.

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  8. I am buying and holding small plots of farmland, hunting land, and timberland in upstate New York in anticipation of the END of the coming hyperinflation. Hyperinflations are usually over within three or four years, and at some point, the demand for such assets will begin to grow again. I'm in it for the long haul...

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  9. This is a fantastic time to have no position in anything but gold that no one knows about.

    Presuming you've already got water, food, and ammo stockpiled.

    Farmland and crops will initially be subject to price controls, sure...then seized outright.

    Presuming you're not politically connected, in which case, what do you care? You'll be fine.

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  10. I second with Anonymous @ May 26, 2011 12:48 PM.

    Maybe farmland is not a wise investment if you want to profit from it during the high inflation period. But the (my) question is: is farmland a wise long term investment to bring you through the HI period. Even if you don't grow any crops, just let it lay barren, it can be used as a store of wealth, no?

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  11. Depends on who's buying and for what purpose. A lot of US farmland got bid up to very unreasonable prices over the last few years. Young ranchers who want to get started with a cattle farm can hardly find a way to make things work - that's not a good situation. Some of those high land prices have not yet unwound to more sensible valuations. So it could be a losing asset ... if you are a speculator looking for short-term gains.

    But the Chinese have been going around the world carefully buying productive farmland in a number of countries. Their goals are very long term. They are like the "Warren Bueffets" of long-term hard assets right now. That's a different strategy - and probably a winning one for them.

    PeteCA

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  12. State and local governments are awash in unfunded pension liabilities. Public policy people are working overtime to come up with new ways to tax all of us. There is a tax bill pending in my state legislature that if passed will tax both income and consumption, and will allocate taxpayer money to fund studies to come up with new ways to tax real estate.

    The vocabulary necessary to institute food price controls, seize food supplies, and appropriate farmland is being disseminated as I type this. There are commercials running on TV right now that talk about "food security." Translation - "The electronic ration coupons have been created and we will institute rationing and price controls as soon as we can create fake shortages."

    K Smith

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  13. Phineas WhipsnadeMay 27, 2011 at 2:35 PM

    So -- how do we know when high inflation has choked off credit? Can't wait for the MSM to tell us, it will be way too late. What signs should we look for? Thanks, GL!

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  14. I grew up in the country and something city people never seem to understand is, farming is a BUSINESS. In order to farm successfully, it is necessary to know an awful lot about crops, weather, etc.; get the right equipment and maintain it in good order; hire and pay competent help; have cash reserves or access to financing; etc. Even then, the farmer is at the mercy of unpredictable events such as drought or an early or late freeze or a sharp rise in oil prices (which affects the cost of the farmer's gas AND the cost of the farmer's fertilizer.) Not to mention the fact that farming is a highly regulated industry with complex federal subsidies and tax breaks and it's necessary to understand all that stuff in order to farm successfully.

    Yet everyone who ever raised a backyard garden is convinced they can farm successfully by pure instinct. People who would study intensively before deciding to invest in a restaurant or a shoe store will buy farmland without giving the matter any serious thought.

    A few people who do this will luck out. Most people who do this will get the exact same result that you would expect if you invested in a shoe store or restaurant without bothering to learn anything about the business. By by investment.
    Katie

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  15. In regard to a farmer who stockpiles supplies: That will only help through one cycle, at most. And once again, it is dependent upon the availability of credit. How many people would purchase a multiple-year supply of goods and services needed to operate a business? If you do, then you have massive storage costs for non- productive assets, which would probably involve needing more access to credit. And if you are in this potential situation with no need to access the credit markets, you probably wouldn't be a farmer anyway.

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  16. A few more reasons why farmland is not a great investment:

    1) Farming is an oil intensive business. When oil prices go up, gas goes up, diesel goes up, fertilizer prices go up, electricity goes up, the cost of water goes up, shipping goes up, the cost of doing business goes up, the margins become thinner.
    2) Fresh food, although much more healthy than processed food, is also much more expensive. That is why poor people are generally fat, they cannot afford fresh food. If our nation is headed for huyperinflation, most people will be forced to choose processed food over fresh food, as they try anything to cut costs in order to survive.
    3) Last but not least, most crops are generally unprotected from the public. If the SHTF, desperate people will steal fruits and vege's right off the trees or out of the ground. The farming operation will be left with 3 undesireable choices, lose a % of crops due to theft, build 8' tall fences around the perimeter, or hire full-time security guards. Neither of which could be absorbed by the small amount of annual profit the operation makes.

    TJ

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  17. It's about time someone corrected the recent hyping of "farmland" as an inflation hedge. Only a country boy can fully appreciate the folly of this proposition. As previously stated by many of the commentators, farming is a credit-intensive business, even for those farmers who own, free-and-clear, their farmland. Money for the next crop is borrowed my the vast majority of farmers, and farming itself is next to Las Vegas as a gambling enterprise. Moreover, the cost of modern farming is hideously expensive because of costly equipment, fertilizers, insecticides, herbicides, etc. It is not - and never will again be - 40 acres and a mule, no matter how severe the hard-times.

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  18. besides the farmland topic, I think the 2/20 fees joke and a picture of a rat is quite inappropriate. On one side, many hedge fund managers invest their own money in the fund, so aligning their interest with the investors'. On the flipside, nobody is forcing you to put money in a hedge fund! If you are so smart you can do it on your own I guess. But since you are charging a blog membership I guess you are not so cut for financial markets afterall.

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  19. Buy farm land and get the Government to pay you not to grow anything. Feed the deer passing through and you'll have food for sale to specialty restaurants in addition to the Fed's booty. How's that for an inflation hedge?

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  20. Simon Purser AustraliaMay 28, 2011 at 12:44 AM

    Unless you live on it, or have a crop that can't be stolen, farmland can be a liability.
    We have 400 acres 2 hours from where we live. We have 5 miles of boundary fence, which is often cut by thieves. Last month the lock on our shed was cut with an oxy torch and all equipment stolen, including tractor, 6 motorbikes, sprayer, chainsaws - you name it.
    Trying to protect stock, crops, equipment and even your families lives will only become more difficult when the SHTF.

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  21. When will people wake the freak up? Do not operate on credit. SAVE until you have enough savings to finance yourself. This massively reduces your "unknows" and massively reduces "variables" you cannot control.

    This is what I have done my whole life. I have never taken a loan, I have never borrowed. Never, not even a mortgage loan. And guess what? Everyone I know has a mortgage is under water on that, plus has tens of thousands of dollars of credit card debt, student loans, etc.

    They are now literally in a life-long "no win scenario", unless something spectacularly good happens to them. In contrast, I have no debt and a few hundreds ounces of physical gold.

    Sure, not suckering for debt means I have been frugal in comparison to many others. Buy I buy a new car every 4 years, buy two new computers every 3 or 4 years, and everything I have is very high quality. The difference is, I don't have closets full of worthless junk --- I only buy things really important to me, not things that seem cool for a month and then hit the closet or garage.

    I have read a never ending stream of articles that make presumptions like this one. They are all massively misguided. I left home after high school on my motorcycle with $2000 in savings from doing summer jobs. I made it BECAUSE I never suckered for the "debt solution". It is NOT a solution - it is slavery and walking death. Just go back and rewrite this article without any debt assumptions. The result is totally different, massively more reliable, secure and safe (lower risk).

    END ALL DEBT.

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  22. Nice job Gonzalo, but aren't you forgetting the part about knowing how to be a farmer. I think there is a bit of a learning curve there. Or I suppose there may be share cropper farmers that are willing to farm some one else's land perhaps their neighbors. But if that is the case they will be taking, more than likely a huge chunk of the profits if there are any.

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  23. Re Anonymous May 27, 2011 7:23 PM
    Perhaps not everyone can earn as fast as you.
    I never wanted to get into debt when I was in my 20's and saved hard to buy a house. By the time I'd saved $40,000, the house I wanted had gone up by $47,000.
    I know that was in the past when "housing always went up" and I agree you should avoid buying a depreciation asset on credit, but the inflation from Bernanke's money printing will mean a debt taken out today will be paid off with monopoly money in a few years - as long as we all still have some sort of job!

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  24. Gonzalo I heard you on 2 beers with steve.
    You called the GOP candidates uninspiring but you failed to mention Ron Paul.
    You said no one would be willing to do something radical, again ignoring the elephant in the room - Ron Paul.
    Now I know you are a sock puppet.

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  25. You are a pompous fool. You know nothing about economics, but talk like you are an expert. You would be over your head in any junior high econ course. The fact that people read your drivel is proof that there are idiots galore.

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  26. @Simon: Oh, I agree it isn't easy to live frugal, be smart and save, especially the first several years. What you say about living in a world run by insane criminals like Bernanke is very, very true. But don't forget this - he drives up the price of everything that us frugal folks want to buy too. We don't have any easier time affording things than you do. We are PUNISHED by living in a debt society just as much as debt-abusers are, even though we get ZERO [supposed] benefits from it. We're just flat out screwed.

    The experiments in central government and central banks are an absolute, complete, total, utter failure. It is FAR past time to TOTALLY shut down and eliminate the federal government and federal reserve. The world we live in today is controlled (and destroyed) by:

    predators DBA government
    predators DBA corporations
    predators DBA central banks

    It is time to eliminate predators by any convenient or necessary means. Otherwise earth will become a PERMANENT slave planet given the monitoring and enslavement technologies already perfected and being implemented now.

    End DEBT. Starve the beast.

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  27. I have survived a hyperinflation and saw that:

    -most farms were robbed daily
    -most of those who "decided" to be a farmer failed
    -government applies rules to farms prices first,
    because if you own a farm, unlike gold,
    you're out there in the open and have nowhere
    to hide.

    I think that because of razor-thin profit margins on farming, it is done on credit. If you had your own capital, then why would you put it in farming, when there are much better alternatives? But without capital, there is a credit, but it is given for certain uses, like farming.

    So, again, we see here a situation where bunch of fat ass lazy credit junkies try to envision how to survive in real world. Pointless. They wont.
    No matter how hard you explain that nothing but gold will save you and precisely why, they will still talk and think like babies and cry : "but I want my farm!".

    As a commenter above me, I noticed, that everyone lives on credit. As a commenter below him, they exuse themselves with "but I want this or that, and credit is the only way to obtain it BEFORE I really earn it".

    Here lies the rub. Majority of the people that will perish operate on this principle. They don't want to consider the merit of EARNING, instead, they consider ways to imitate those who does.

    Philosophically, this is the reason they will fail. Because while on artificial life support (socialist state, as it is now), you are free to imitate whatever and whoever you want, and you will still be on life support.

    In the real word, however, all imitation ends as soon as your stored fat ends.

    Most of the people discussing these subjects, also do not consider getting the hell out of dodge, as their forefathers (who were survivors) did. This too, is a mark of a dead man. A dead man isn't doing what makes sense, he is doing what seem to make sense and at the same time does not inconvenience him.

    Most are unwilling to leave because they don't want to:
    -go through the troubles adjusting
    -learn new language
    -abandon position of natural citizen

    Yet, in the same breath as they decline something they should have really done, they adore their very forefathers who survived because they always did the right thing, and who had left the unwelcoming shores instead of attempting to teach a whole continent going insane a lesson.

    Only dead men do this. So, anyone who is prepping to stick it out, is already telling that he isn't even considering the way to survive, but only the way to survive in comfort.

    Forget it. Waste of time. There is a saying that whatever is done turns out to be for a reason. May-be there is truth to it.




    ......



    And, I am too, now suspicious that Lira didn't mention Ron Paul. What's up with that, Lira? Did they pay you to be a good boy? Or was it your personal dislike of Paul? (I don't trust he can do anything, actually).

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  28. Gonzalo, what was the relationship between farming, speculators and hyperinflation in other countries in the recent past? Argentina and Chile come to mind, although there certainly must be other examples to study (I do not include Zimbabwe for the obvious reason that Mugabe is a murderous megalomaniac). How did other jurisdictions fare in a hyperinflationary scenario?

    BTW, those who said that farming is a tough business, know what they're talking about. I briefly operated a small pig farm a number of years ago and one thing I can say for sure is that I don't want to be a farmer, ever. It is just too tough for me and my hat goes off to anyone who's in the business.

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  29. farmland is a no brainer if infact you know what you are doing

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  30. I have survived a hyperinflation and saw that:

    -most farms were robbed daily
    -most of those who "decided" to be a farmer failed
    -government applies rules to farms prices first,
    because if you own a farm, unlike gold,
    you're out there in the open and have nowhere
    to hide.
    ----
    Gold isn't the answer either. 20 years ago I was an EchoStar on SurvNet, the Survivalist Network using FidoNet technology. A lot of the discussion revolved around what to use as a tradable commodity.

    A Hyper Inflation event will likely cause a breakdown in social order as well. "Most farms getting robbed daily" is one of the markers and it will happen, especially in the US, which has a large and prevalent 'screw thy neighbor because you don't know them anyway' culture.

    The only hedge against that is a willingness to use Lethal Force and the means to implement it. Gold will be useless for other than minor trades. Weapons and ammunition become much more valuable than gold.

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  31. I bought 40 acres of eroded corn field in central Mexico 6 years ago. Now it has 9000 pine trees about 25 feet tall. For my $30k investment, I might make $900k (or more if I cut, treat, and transport my own logs) in the year 2025. Trees are hard to steal, and labor is cheap here.
    Get out of the USA while you can, losers.

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  32. You may want to check out how Iowa farmland has performed/sold from 1980. This link will take you to the annual Iowa State University survey of Iowa farmland prices. http://www.extension.iastate.edu/agdm/wholefarm/html/c2-70.html

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  33. Duopaka nailed it. I left Argentina in year 2000 right after the collapse, 3 different presidents in one day I became a US Citizen years ago but I am back in Argentina now, America is not the same country anymore...McDonalds announced 60000 openings nationwide and 960.000 people applied.
    widespread misery is what is coming, high crime, alcoholism, rampant drug abuse among the desperate youth...not a pretty picture. My friends here had a tiny farm for theyre own consumption that saved them a lot of misery.

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  34. Hmmm,
    Lot of people on here talking about farms and farming, yet none of you are actually farmers. This farmer says good luck when this thing gets going as most of you dont have a clue.

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  35. Raw land is the perfect hedge. When TSHTF, if I have 10 million dollars, the dollars, WTSHTF, will buy very little if anything. At say, $10,000. an acre, I can purchase 1000 acres, and feed myself, my family, my neighbors, and who knows who else may want to exchange an once of their gold/silver/platinum...etc, for one of my ham sandwiches..Yes I would have to deal with the thieves, which is typical; when you have assets, you always have to be concerned about theft. If I stay in cash, though, my main worry will not be protection of my assets, but rather how to make it on time at the soup-kitchen line downtown.

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  36. I have no money, no gold nor silver, no investment properties, and no hedgefunds. I do have congestive heart failure, and a bad kidney. Any suggestions as to how I could get a five acre plot of ground so I could provide for myself?

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  37. Hi Gonzalo,

    The article was a bit simplistic. I think, if you review the 'reasonable' responses above you will find that you could/should re-write the article.

    I grew up on a mixed farm (grain, Holsteins, steers, pigs, chickens and lumber in the winter. There are many advantages to having a job, any job (out-doors or with animals) and feeding yourself vs the alternative of being simply unemployed in the city. Specifically, I am referring to being your own person. [Yes, being debt free is important.]

    The SPA is probably a good idea, but if this article is a preview to depth/breadth of the analysis - then I think more polling of informed opinion would be useful.

    jds

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  38. I went thru a very mild hyperinflation in Ecuador late 1990s, on a 200 hectare aquaculture farm several hours from Guayaquil. As things worsened, the poor would come on to the property and steal anything they could, even water hoses. I'm sure they were also stealing our crops. We had armed guards posted 24/7 and that only slowed them down. Just to drive to Guayaquil we had to pay off the poor who would block the roads. We did not go thru those conditions long, and eventually packed up everything we could and shipped everything back to the U.S. and sold everything here, and abandoned the farm and the business. There are squatter property rights there, so there is no reason to go back and even attempt to reclaim ownership of the land.

    As far as US property values in the U.S. during hyperinflation, I did talk to a professor of Economics (Austrian). He believes prices of property will increase in nominal values (paper fiat money terms) BUT decrease in purchasing price. So if you were lucky enough to find a buyer, your sale proceeds might not buy you much more than a loaf of bread a week or two later.

    My fear is the state governments will add more zeros on to the real estate tax. But what would the state do for non-payment? Seize all or most of the land in the country from the citizens for non-payment of taxes?

    First, I think after so many losing their homes from the r/e bubble, an attempt by government to seize during a hyperinflation would result in open and armed revolt. And there are more property owners than tax collectors, that's for sure.

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  39. I'm not a farmer, but I've been practicing growing enough food each year to feed a family of four for an entire year without anything more than manure and water. And learning different food preservation techniques. It is a lot of work each day, but very rewarding emotionally and in terms of a full larder. Each year I've planted a couple of main crops that provide for more than 2 years stored food, in the event I have a bad year, I'll still have something to eat.

    Each year so far there have been unanticipated failures. One year I had so many cukes I didn't know what to do with them, the next year next to none - even though the same seed - and same everything. One year winter squash was on steroids (all heirloom), then next the bugs decided to thwart my efforts, and destroy a 3 year supply before harvest was possible.

    The person above who says we are clueless about being a farmer is correct. But, don't let it discourage anyone. Start immediately. Don't worry about your neighbors, worry about yourself.

    There are only so many man hours of labor possible without diesel/gasoline fueled equipment. So don't count on growing a whole lot extra unless efforts are pooled.

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  40. I live in a big ag type of community. One crop per farm. Irrigation needed or all crops since it is a desert.

    My first thought was that they'll all go broke if they aren't thinking in terms of hyperinflation. My second thought was the fed gov'mint would wind up subsidizing all big ag farmers to feed the people in the cities. Of course, printing more money out of thin air to subsidize the farmers.

    There are some unusual things happening here that are causing lots of rumors. National Guard in the middle of the night practicing nobody in/ nobody out in the closest town. Makes me wonder if they are practicing for civil unrest.

    Middle of the night practicing sliding down ropes from helicopters and weird troop activity.

    A significant number of everyday type folks are preparing specifically for a hyperinflation. Too bad the citifolks I talk to have no clue. The food still magically appears in grocery stores.

    Can you imagine a "nobody out" of the cities type of situation? That's one way to help protect big Ag so they can still produce.

    I do agree with Lira - farmland isn't a good hedge against inflation.... unless you are one of the lucky to sell before the tipping point. Real estate prices will collapse, including farmland when the currency collapses. In the great depression prices collapsed some 80%+. In a hyperinflation, depression followes, so a collapsae in real estate prices is... a given.

    It isn't so far fetched to think a portion of the population will die from starvation and related civil unrest (read as lesser demand for big ag products....) if they practice nobody in/out of cities/towns. That alone might necessitate the idling of a lot of productive land - affecting value.

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  41. yes, your comments on farmland as an investment make sense. ... but farmland as a survival asset if times get REALLY, REALLY bad is another question altogether.
    disclosure: i am long farmland (4 acres), seed, frertilizer, a roto-tiller etc.

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  42. GL, What happened to my comment? I can't see it... I submitted it about 21.00 CET 2011-06-09 and it's not there..

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  43. GL, sorry. I commented on the europhrenia and my comment is still there. Somehow my browser directed me to this article.. I was drunk and still is, but I'd like to blame my browser anyhow...

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  44. Interesting topic.

    I am a farmer from Canada and I remember going through the high interest rate period in the 80's. Land prices did fall, but not significantly, and certainly not what I would call a crash. There was lots of talk about selling land, putting the money in the bank and just collecting interest. But I don't know of anyone who actually did it.

    I also don't know of anyone who stopped producing crops or livestock at the time. Its not as easy to jump in and out of these things as one might think. Usually once you're out, you're out for good.

    As long as interest rates stay reasonable I think the land hedge against inflation will work.

    Gonzalo, you have made a good case for low interest rates this time around in a number of articles. If this holds true farmland value should hold up nicely. But if interest rates go through the roof again then I would agree that land prices would drop accordingly.

    But over the long run I would argue that land behaves very much like gold. As long as currency inflation continues the price of land will continue to go up.

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  45. It's no surprise. The debt party's over and everyone knows it. Land prices couldn't keep rising forever! The USA has a serious debt problem that needs to be addressed. But at the moment it’s not even being acknowledged. Why not? Could it be that if we acknowledge the debt and the need to deal with it, we have to acknowledge its cause? And could it be that the cause is too unpalatable to reveal? Could it be that successive Australian governments, along with business, have been running a Ponzi scheme with our assets, our resources and our future? It's unsustainable. No government wants an asset price crash , slow growth undermines the short-term share price of big business (and CEO remuneration), as well as the electoral performance of the government. So to facilitate growth, the Government turns a blind eye to the fact that a significant proportion of demand fuelling “growth” is debt driven; debt-financed demand has constituted around 20% of total demand in the Australian economy. The best way to keep growth on the up and up is to keep everyone spending and money cheap. Consumers are told that spending is the right thing to do by businesses that profit from consumer expenditure and by governments who bask in the glory of booming growth figures. The availability of cheap credit and consumer binges drives up prices, so more debt is needed to keep the spending going. People feel wealthier as their house prices have gone up and they have more stuff, but they don't realise that housing affordability is worse that it has ever been. They think their house will fund their retirement, so they are happy to spend more and save less. Everyone is happy – particularly business and government - so long as the spending binge continues – and money can be found to keep servicing the mountains of debt being accumulated. And therein lies the rub. How is all this debt to be financed?

    Steven Keen
    Australian Property Bubble Forum

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  46. We all know a big shit will happen soon, gold will never be an alternative , farming neither . I am building a commodities deposit , something more like a shelter .. For the common ctizen the real question is how will he survive a civil war.. This won't look like the German hyperinflation, when many germans run to other countries , this will be global we won't have where to run ...

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  47. Right! the farmlands make farming commodities—which in an inflationary scenario would increase drastically in price. Thus one would believe that owning farmland would be taken to owning a gold mine, Texas Land Sales find Land.

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