How much is American farmland worth?

Why should American farm land trade at a premium to farm land in Russia, South Africa or Argentina?

Well there are a number of factors today (although these may be shrinking). 1) What is the cost of labor to work the farm land? 2) What are the property taxes? 3) What is the level of economic stability in the area? You did’t want to invest in Cuban farm land right before Castro took control. 4) How close are the markets to your crops? If you are growing walnuts and the walnut market is on the other side of the planet then you will make less than if you are near your market. 5) What are the chances that the government will simply confiscate your property (think Venezuela’s confiscation of the property of Concoco-Phillips). 6) Do I have access to modern farm machinery to harvest my crop or do I have to rely entirely on human labor? 7) How dependable and economic is my water supply? 8) Can I use the best fertilizers for my crop?  8) What are the alternative values for the land? When farm land was being converted into subdivisions in the US, it lowered the supply and the minimum price for the land. 9) What are the state and federal income taxes on farm income? The lower these are the more valuable the land. 10) Is there an established support infrastructure for the crop you are growing? For example, if you are the only walnut orchard in the area then you have less opportunity for sharing hullers and sorters and this will likely drive your costs up. 11) How prosperous are the farmers in your region? Farmers are the usual buyers of available farmland and if they have been making and saving money then they can pay a higher price than if they are struggling to make money on their existing land.

The Pride-Of-Ownership Premium for Collectible Wines

My favorite white wine is the Chardonnay from Busby Cellars in Somerset, California @ $12 a bottle (with a case and club discount off the $15 retail price). 

This is the standard I use to compare all other white wines and I have not found another white wine I like better - at any price. 

I am not a wine collector; I buy it and I drink it. But a story I saw on CBS this morning caught my attention.

A few folks have different criteria that I do and will shell out $3500 for a 1961 Lafit-Rothschild. I would be thinking “What if I bought it and didn’t even like the wine?” Heck, drinking it would feel like burning 35 hundred dollar bills in my fireplace.

But why is the 1961 Lafit-Rothschile worth $3500 while Busby’s Chardonnay sells for $12-$15?  It all comes down to the “Pride-of-Ownership” Premium - in other words bragging rights. Assuming the Lafit-Rothschild is as good as the Busby Chardonnnay (I doubt it), then the Pride-of-Ownership is $3485 ($3500 less $15).

How is the Pride-of-Ownership premium determined?  Like most free-market prices, it’s a function of the supply versus the demand.

This morning’s CBS Sunday show told the story of how a recent burst of counterfeit wines is starting to put a damper on the demand for collectible wines. 

The story features Bill Koch (according to a Forbes 2012 article had an estimated net worth of $4 billion), the victim of counterfeit wine fraudsters. To date he has spent $25 million in legal fees trying to recover some of the money he spent buying from Rudy Kurniawan (recently described as the Bernie Madoff of the wine world) and other crooks.

In the interview, Koch explains: “I used to bring people down here (his wine cellar) and brag and say do you want to see Thomas Jefferson’s wine?  Well then when I found out it was fake, now what I’m going to have to do is say come on down and see my fake Thomas Jefferson bottles.” 

After his litigation (where he might fail to collect a penny) the shame of being scammed has replaced the Pride-of-Ownership Premium. Not only are the bottles worth nothing, they probably have a negative value because they raise Bill Koch’s blood pressure every time he recalls how he was cheated.  Wine experts claim that buyers are getting gun shy about buying collectable wine – the result will result in the downward pressure on the Pride-of-Ownership Premium. Like all prices, supply and demand is the ultimate driver of where the price is today and where it will be tomorrow.