Sunday, July 20, 2014

Land Values and American Agriculture

Recently I happened to be out in the sticks doing some livestock type stuff when the person I was with, who does livestock type stuff full time, asked me what I thought of a recent place I know relatively well having sold.  I didn't know it had sold, which shows how I'm both out of it, and how local news really is.

 Nebraska homesteaders. These homesteaders were likely doing well, as they had a couple of horses, some sort of implement a wagon and a band of sheep.

Indeed, not only had the place sold, it had sold for a very high price.  Now, the interesting part of this is that it sold for a middle high six digit figure to the family that just sold it, when they purchased it about 30 years ago. The current sales price was over 10 times higher than that old one.

Now, on that, I'll first observe, and I think it important, that 30 years ago a lot of agricultural land, including Western agricultural land, was at a depressed price due to an economic slump that the country had entered combined with some insurance companies having invested heavily, at that time, in agricultural land.  This combination caused a lot of land to go on the market at a depressed price, for one reason or another. So, those mid 1980s values may not have been realistic or reflective of true worth at the time.  They undoubtedly were not, so the price was probably deflated by 1/3d at that time, meaning that the true long term value was higher, and the recent price in actual dollars was probably more like nine times higher than the mid 1980s price.

And while the 1980s weren't a period of hyper inflation like the early 1970s were, the fact of the matter remains that we still continue to experience inflation and that means nearly any time we look at a figure we find in the past, we  have to take that into account. And it turns out that a 1980 dollar wold be worth about $2.00 in current money, so realistically the rise in price of this parcel of land is really probably a factor of about seven.

Still, something increasing in value by a factor of seven isn't insignificant. What's up?

Well one thing that's up is that the agricultural land that's being sold right now in the West is clearly not being sold at a price reflective of its production value.  A realtor I spoke to told me that its been the case for a very long time that ranches generally only generate 1% to 2% of a return annually, although I'm not sure what the 1% to 2% is based on (I should have asked).  I.e., 1% of what?  With the current high prices, I'd be surprised if they generated that much on a return in investment.  But what is obvious is that a lot of ranch land is currently priced at a level that is aimed at the very wealthy, who only wish to own a lot of land, or at people who have perhaps come into a lot of land and need to invest it.  If you had, for example, $10,000,000 from selling your oil sodden farm in North Dakota, putting it into a $8,000,000 ranch in Wyoming might make sense, as a economic endeavor.  It doesn't make sense if you made $10,000,000 from your widget business in New Jersey, but you might wish to purchase a lot of land as it's an attractive idea if you are in New Jersey (I'll note that I don't know anything about New Jersey, I'm sure parts of New Jersey are very nifty, so I'm not taking shots at New Jersey).

 Nebraska homestead with rather odd windmill.

Or maybe there are all sorts of factors I don't appreciate, as I don't have $10,000,000 to spend on anything, and probably don't grasp the concerns that people with that sort of cash have.  What I can say, however, is that there are people who buy ranch land in the west for emotional and psychological reasons, rather than economically practical ones, and that most land right now is priced at a level that, if its an actual unit, only the very wealthy can afford it.

This is an interesting, and perhaps disturbing, trend.

There is only so much land on earth and not all of that land is suitable for agriculture by any means.  Having started off with so much of it in the US, mentally we're used to the idea that there's land for everyone, including farm land if people want it. That was probably also never really true, but it was truer here than elsewhere.
 Nebraska homestead, probably a stock raising outfit.

The originating nature of American agriculture is found in Europe, and the story is ancient.  At one time, small homesteaders, in the loose use of that term, farmed tiny plots. But even as early as the later stages of the Roman Empire, the central government claimed a right to doll out parcels of land.  When Rome fell, land occupation at first went back to that rude sort of homesteading.  And that continued for some time. Even the Vikings were more farmers than raiders, violent homesteaders if you will.  But in the early Medieval period the families that had started off as little more than strongmen became the sovereigns, and were regarded as owning everything in their countries.  In Shakespeare, when a character refers to Henry V as England, it makes sense. Henry V, like every other sovereign, wasn't only the king of his country, in a land ownership sense, he was the country.

 The ruined Abby at Abbotsbury, England.  Picturesque, but it depicts a bleak history.  The Abbey was closed by Henry VIII sacking of the monasteries and the land in England was largely owned by wealthy large land owners up until after World War One, which a change in inheritance eliminated primogeniture and the tax structure changed, causing a rise in the fortunes of individual farmers for the first time in generations.

Kings dolled out land to lessor nobles who rented it to tenants, and that situation, very much developed, is the one that most of our European ancestors fled from.  Farming as a tenant isn't so much fun, in a worrying about how your crop is doing sort of sense.  Owning your own land, and being a "yeoman", is much preferable.  And as England and France (unlike Spain) allowed colonist to do that, in the New World, the inducement to emigrate was a strong basic one.  People like to imagine that all their immigrants were brave souls fleeing oppression, but a lot of them were just desperate farmers fleeing a life of rent.

Land in North America was always cheap, and prior to the Civil Ware there were always ways to acquire it nearly free of cost, with some states granting state homesteads or land grants. Sometimes the grants were tied to military service in a war, much like Roman land grants had been.  One state actually held a lottery for land.  But during the American Civil War the government passed the Homestead Act to encourage the populating of the American West.

Settlement of the west was already occurring.  Americans had been going to Texas (and receiving Mexican grants) since before Texas' Independence, which probably was a source of lasting regret to Mexico, and Americans began to flood into California starting in 1849.  The fact that the US would even think of doing a semi bizarre wartime act of encouraging the working age population to move beyond the draft really says something about the power of the northern states in comparison to the southern ones.  Who does something like during war time?  "Hey John, be prepared to go into the Army. . . or think about moving to Oregon. . . "  Weird.

Anyhow, that the entire process took to the US to a new level in all sorts of ways including that the Federal government now actually dolled the property out for free, to some extent, to those who simply worked it.  And they could buy more at a very low price.

 19th Century Nebraska Homesteaders.  Apparently this family thought sufficiently well of their cow to allow it to graze on their sod roof. 

Now, a couple of corrections are in order here about the story of homesteading.  In the popular imagination, some hardy homesteaders moved to the frontier, and put in a farm.  That sort of skips a step.  In actuality, homesteading was pretty hard.  It probably seems easier in our collective imaginations as most Americans at that time came from an agrarian background and they didn't have to be taught how to farm, usually.  And if they did, their homestead was likely doomed.  And in actuality a homestead required a pretty significant investment.  Storing up stuff for years in order to be able to do it was not common.  Even in the photo above we can see that the homesteading family has at least two mules, some sort of implement, and a cow.  No doubt they had more than that, but at a time when resources were thin, purchasing anything was pricey.  Keep in mind that this group apparently had six people to feed and clothe in addition.  

Most homesteads failed and contrary to the common belief there was a lot more 20th Century homesteading than 19th Century homesteading. Most 20th Century homesteads failed.  You can see photos of some failed homestead here, if you like, together with ones that didn't fail.  The whole process really didn't end until the 1950s, when the last of the homestead entries made before the expiration year of 1932 were finally proved up, save for a small number that were taken out in a special post World  War Two program.  And throughout the homestead period, but particularly later in the 20th Century, it was pretty common for farm and ranch families to dream of a better, easier life, they imagined existed in town.  Indeed, the irony of romantically looking back on homesteading is that homesteaders romantically looked forward to a non farm future for their descendants, in quite a few instances.

But it was still the case, in spite of the extremely difficult work and the very high chance of failure, it was still possible to acquire land that way for a person of modest means.  In order to succeed, including succeed out here in the arid livestock raising West, years had to typically go into the preparation to take out a homestead, contrary to the common view, but it could still be done.  A young man might, for example, work for a decade as a cowboy, acquire a small herd of his own, and then homestead.  Or a family might scrape enough together to give it a go.  As one of my old friends told me about the Homestead Act which his Russian immigrant grandparents had taken advantage of, "It was a good deal for poor people." 

Now, that same land is being sold in a lot of places for extremely high prices that certainly people of modest means, or even though quite well off but not extremely well off, can afford. 

Cheap land was an enduring feature of American history from day one, and in truth has a lot more to do with the success of the American nation (and Canadian one) than any concept of "American Exceptionalism" does.  The country became a big success because:  1) we had a lot of cheap land, and 2) we let people acquire it.  This isn't true of every country that has had a lot of land, but for those that did, and followed that recipe, they were guaranteed to be a success.  Australia and Canada provide other good examples.  I wonder what the meaning of the current situation is to us now?

It isn't as if this is exactly a new situation, but it is one that seemingly hasn't sunk in to people yet.  It's still a common bad drama scenario to have some guy tired of the stress of a big city go out and buy a farm or ranch.  One episode of the nighttime soap opera "Army Wives", for example, featured a series of plots in which a Specialist E4 is going to leave the Army and buy a ranch in Wyoming. Seriously?  On E4 pay you'd be lucky to afford a Lego Ranch.  But that idea, now matter how absurd, remains a common one.

And a bit of a heart breaking one for some.  I've been in groups of young men some 20 years my junior where they are working part time on ranches, or full time, and they speak of buying a ranch of their own some day, the same way that cowboys of 1890 could and actually did. They're not going to be able to, ever.  They probably know that, but dream otherwise.  At least a couple of the individuals I've heard express that sort of hope were working cowboys, who have to know that they can't possibly afford their own place at any point in the future.

This is a remarkable change in the history of the American nation, and maybe not a very good one.  If the foundational aspect of this country was the ability to go out and get your own land, and make a place for yourself, and if that is now dead, and it nearly is, what does it mean for the future of the country?

Now, some economist (and "futurist") would cheerfully (seriously) say that in the modern economy, agricultural production is an antiquated primitive means of generating wealth, and we should be happy as the new "homesteads" if you will, can be staked in the big city urban economy.  Can't start a ranch, well that's because society needs you to start a DotCom.

That's sort of a worrisome view to those inclined to worry, like men, however.  Another observed trend (but maybe not a new one) is that a majority of Americans do not like their work.  Now, chances are high that statisticians didn't take that figure in earlier times.  Did a majority of cigar makers in a cigar factory with no ventilation like their work?  I doubt it. What about a majority of coal miners in places like Hanna Wyoming where the mines collapsed and killed hundreds every now and then?  I doubt that too.

  Memorial to the Dead of the Number One Mine, in Hanna Wyoming.  Mine collapse killed over 200 miners in the first decade of the 20th Century at this location.  From Some Gave All.

Still, there's something about this that's distressing.

And indeed, its been distressing enough that in other countries it's been legislatively addressed.  In some European countries the transfer of farm land is pretty strictly limited to transfers to those who would farm.  Here in the US, an attempt to address can be found in various Young Farmers Programs that seek to provide funding, at a grossly inadequate level, to beginning farmers.  The US example, however, hasn't kept pace with the economic realities and, in addition, the government has worked at cross purposes with the Rural Home Administration also acting as a vehicle to fund the subdividing of land. 

Maybe there's no solution to this at all, and this reflects what happens when a country has over 300,000,000 people in it.  But it's a pretty significant change in the country that will impact its nature at some point.  Americans have tended to look at themselves as a hardy frontier people, but they're really a urban one and are closing the door to their rural past in real ways.  Part of that includes closing the door on people who would live as farmers if they could, thereby choosing a life of service for those people, or an urban life preferred by those who study numbers.

But wait!  Is this really a farm story, or a story that just happens to have been written about farmers.  In other words is the story broader than this. 

What if you wanted to open a grocery store?

 Neighborhood grocery store in Altoona Pennsylvania, 1930s.

When I was a kid, this town had several small locally owned grocery stores.  I can recall the Grant Street Grocery, Elk Street Grocery, Brattis' and two whose names I can't recall, one on Ash Street and another in North Casper.  Added to that were several small markets (whose names I also can't recall) that were sort of on the convenience store model, and not real grocery stores.  Of all of those, one survives, and it survives by being a specialty market to some extent. Brattis', which always had a really good meat department, survives as a butcher's shop, or meat market.

Or what if you wanted to open an appliance store, sporting goods store or an audio equipment store?

 Hardware store in former bank building, 1970s.

Now, of course, all these types of stores still exist, to be sure, and there are locally owned ones everywhere, but there's no denying that locally owned stores selling many types of items are much rarer than they used to be, and they face economic pressures from large retail chains everywhere.  This is, in fact, an increasing, not a decreasing trend.

Now, this is distinctly different from the story of agricultural land, for the most part, presented above, but it is interesting that overall in our economy, it's just tougher for individuals to own a business of any kind, of their own. Even in the classic professions there's been at least local consolidation and the individual shop is less common.  It's an interesting trend, and it shows no signs of abating.  The question would be whether that is something that truly benefits the individual, the collective whole, or either?

At any rate, the change overall has been monumental, and in agriculture it's becoming fundamental.  The long term meaning of it is unknown.  Maybe there really isn't one, in a country that shifted over from having a very significant rural population up to the mid 20th Century but which no longer does, or maybe it means a rethinking, at some point, as to what it means to be an American, where party of the foundational myth of the country is no longer realistic for most people.  Of course, many other nations have similarly now unrealistic foundational myths, but keep them.  Most Australians, for example, aren't hardy residents of the Outback.  Most Arabs aren't Bedouins.  

At any rate, in the context of this blog, here's a change from a century ago that is seemingly unacknowledged by the general public, but which certainly is huge in real terms.  I'm used to people telling me "I grew up on a ranch" or "I grew up on a farm".  In the future, that won't be heard all that much, at least if present trends continue.


I recently read two articles that reminded me of this recent post.

The first one was in the magazine Super Lawyers (I'm not too sure what I think of that title) which featured a short article on a Cheyenne lawyer I know a bit (not much).  I did know that his family had a ranch and that one of his older brothers ranched it.

The article was interesting in that it told an age old tale.  Turns out the lawyer found that there was no place on the ranch for him, as his two older brothers and their families were already on it.  That's not really something new, this lawyer related that he's now 68 years old.  Still it shows the general impossibility for a common person to enter this field.  He came from a ranching background, had an agricultural degree, but there was no place for him to go. So he went on to the law instead.

The second article was in the  Casper Star Tribune today, and had a headline about young ranchers now entering the profession at an increased rate, locally. The increasing age of farmers and ranchers is constantly noted in the press, and the headline would give the impression that young people were successfully taking this up as a career from outside the profession.

Well, the headline was misleading. Rather, the article was about the children of ranchers becoming ranchers, something that's hardly news.  Again, it's illustrative of the points developed above. 

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