Farm land investment

arbitrage

Any views on Irish farmland as an investment currently?

There is proposed EU legislation regarding payment of farm subsidies. From what I have been told currently you have to maintain a certain number of animals to reach your quota to get your full subsidy for 6 months. It is being proposed that this be extended to a full year and the farmer will recieve the same subsidy amount.

This would make it a lot less attractive for small farmers (<100 animals).

When this proposed legislation comes in there could be a lot of farmland for sale and bargains could be found.

In the long term farmland has proved to be a good investment and there would be no shortage of farmers willing to rent and maintain the land as it will become a case of expand or suffer for the remaining small and medium sized farmers.

There is also the option of planting forestry, which I am unfamiliar with, but from an investors point of view would take relatively little regular maintainance I believe.

I am interested to hear others views on this as a long term (20+ years) investment.

Timmaay

The problem in Ireland is the turnover of land (ie how often land comes up for sale) is very poor, people are very attached to land, and prefer to see it passed down from generation to generation, then just sell it. This makes land overvalued from an agriculture use point of view.

Good land in Ireland sells for an average of about 10grand/acre (it did hit up to 30grand/acre during the boom, but this was insane, caused by the building boom and didn't reflect at all on the agri value of it). Rent is anything from 100-250euro/acre/year (its at the 250 mark at the minute in fairness!). At 10k/acre, this is a yearly return of 1-2.5%, a savings account will net you a better return at the minute. Where the value of land is heading is anyones guess, during the recession it dropped to 7/8k per acre (from what I remember), and has recovered now to about the 10k per acre, which is due to a boom in agriculture at the minute. We certainly are nowhere near returning to anything at all like 30k per acre anyday soon, my guess would that it will remain static enough at the 10k per acre for the next few years. The one big exception are large (100/200 acre+) parcels of good land, these are like golddust from a dairy point of view.

Finally, in terms of what you said about maintain the certain number of animals, I assume what your talking about is the doubling of .15LU/ha, to .3LU/ha. 1LU is one dairy cow, so .3LU/ha is still only say 1 cow per 3 ha, or say 1 cow per 7acres!!! Only very poor land cannot maintain more then 1 cow/7acres, it wont effect most farms in fairness.

Forestry on the other hand certainly offers a more clearcut return long term, the capital cost of the land is much lower for one.

green_island

from a macro economic global POV , agriculture is expected to perform very well in the coming years due to increased demand for western style diet in developing countries like china , recent developments in trade between ireland and china have very much focused on food production , ireland is seen as a producer of quality food

as to how this plays out in ireland regarding the price of land , you would have to think land prices will remain strong well into the future , when you consider the fact that despite banks not lending a bean , farm land prices in ireland rose by 15 % in 2011 , i know agriculture is booming right now but at ten grand per acre , one or two bumper years doesnt pay for a farm with a bank manager saying no dice , it suggests to me that while farmers always talk poor , they have plenty of money when a bit of grass comes up for sale

of course land for sale is a real rarity in ireland , the average acre changes hands once every three hundred years if you dont include inheritence , the attachment to land in ireland is like nowhere on earth

it all points to a continued increase in the price of land

arbitrage

The flip side of this coin from a bit of further research:



A review of planning across 34 city and county councils found that in 2008 42,000 hectares were zoned for residential purposes — enough for 4m extra people on top of the 4.4m population at that time.


An Taisce further claims that 40% of the €75bn property portfolio transferred to Nama was categorised as “development land” which will be reclassified to agriculture over the coming years. This will result in the value of Nama’s development land plummeting from a paper figure of €30bn to a single-digit figure, costing tens of billions in losses for taxpayers over generations.

green_island

arbitrage wrote: »

The flip side of this coin from a bit of further research:



A review of planning across 34 city and county councils found that in 2008 42,000 hectares were zoned for residential purposes — enough for 4m extra people on top of the 4.4m population at that time.


An Taisce further claims that 40% of the €75bn property portfolio transferred to Nama was categorised as “development land” which will be reclassified to agriculture over the coming years. This will result in the value of Nama’s development land plummeting from a paper figure of €30bn to a single-digit figure, costing tens of billions in losses for taxpayers over generations.

what makes you think farmers wont snap the land up like hot cakes ? , when land comes up for sale , farmers beg , borrow or steal , they whinge all year round about having nothing but when a plot of ground goes to market , they have no trouble spending a fortune

more power to em

greenfingers89

thought i'd throw in a few fo restry figures for yee,

purchase 100 acres to plant for say €330,000
insurance (depending on site specifics) say €1,800/year (total of 33 years)

income from grants minus USC say €16,500/year (total of 20 years) (index linked)
year 19, 1st thinning........say profit (todays rough average price) of €18,000
year 24, 2nd thinning........say profit ("") of €40,000
year 28, 3rd thinning........say profit ("") of €100,000
year 33, clearfell......... say profit ("") of €500,000

year 34, replant........cost ("") of €120,000


there are NO GRANTS for the SECOND rotation crop

a simple way to add value to the above figures is draw single farm payment entitlements which will be changed in a couple of years but might average at anywhere from €100-400/acre/year

feel free to pick as many holes in these figures as yee wish, they're very rough (its getting late after all)