# Is Our Prosperity Fragile?



## Vol (Jul 5, 2009)

Some insight from a Purdue economist...

Regards, Mike

http://www.agweb.com...perity_fragile/


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## mlappin (Jun 25, 2009)

Most certainly is, especially when we have people running this country and setting financial policy that would lose in a most embarrassing way on Are You smarter than a 5th grader?


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## rjmoses (Apr 4, 2010)

Two things:

First, I don't understand how land at $20,000/ac "is valued at more than twice its earning potential." I hope they don't mean I could be earning $10,000/year on an acre. (Pot?)

And, if I do some back of the envelope calculations on $7 corn, 200 bu/ac yield, 30% ROI, I come up with maybe $500/ac/year net profit (maybe). So I'm terribly confused by these land prices. I just don't see the economics without making some outrageous assumptions.

But, I am betting that land prices will collapse. The risk here is if there is hyper-inflation where we will $20,000 to buy a load of bread.

Second. I love the line, "Minimize your wrong choices" under tips. Will someone please teach me how to do that! If I knew I was making a wrong choice, I wouldn't have made it! Unless I flunked 5th grade.

Ralph


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## slowzuki (Mar 8, 2011)

I don't know the exact definition but because in traditional economics land doesn't depreciate they often only worry about the interest expense on land. At current rates will 500$ an acre pay the interest on 20000$? Haven't done the math myself. Once prices climb it looks like an investment opportunity so people who want to make money on the appreciation of land and don't care about the long term of the ground paying for itself get in the ring.

It's nothing to do with who is in political power it's an example of free market forces running without gov intervention.


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## swmnhay (Jun 13, 2008)

$500 an acre would be 2.5%.So if interest went to 5% =$1000 acre.At 10% it would be $2000 per acre

I remember paying 18%.That would put interest payment at $3600 per acre









But of course you also have to pay property tax.

And pay on the principal.


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## swmnhay (Jun 13, 2008)

> Boehlje shares a lineup of factors that make us vulnerable and tips to capitalize on ensuring uncertainty (see below). In addition, he admonishes producers to do a "fragility test" on their own operation-to know where they stand. Being bigger, more specialized and more highly leveraged all
> increase fragility.


Ag classes,Farm magazines,and so called smart guys have been teaching.

Get Bigger,Specialize,Borrow money to expand for years.

Alot that followed that advise "Get bigger or get out" in the 70's went belly up in the 80's


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## rjmoses (Apr 4, 2010)

There are only two winning strategies in any investment: Buy low, sell high. Or, Sell high, buy low.

It seems to me that the first strategy is no longer available. So that leaves the second strategy.

Ralph


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## Vol (Jul 5, 2009)

Our entire economic system in this country is critically fragile.....seems anymore everything I have anything to do with is fragile. You can't even carry on a conversation anymore with strangers for worrying about their fragility(political correctness). I think its called "Delicate Balance"......but it is not looking very balanced anymore.

Regards, Mike


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## Teslan (Aug 20, 2011)

I agree that the economy is fragile, but I don't really see the high land prices as a huge danger. Those land owners that have bought at these super high prices will be hurt. The farmland will get foreclosed on and granted rates don't rise much another farmer will buy that land at a lower market price and keep on farming it. The lenders will be hurt, but they will still lend. Much like the banks did during the housing mortgage crisis. Ag land lending is still safer for the banks then lending on residential houses.


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