The Weekly Advertiser Horsham

What’s it worth?

- With David Matthews

Does the market know best? To be honest, there’s much about the new economy I don’t understand.

I don’t understand how a virtual currency can attract such frenzied investment and now be ‘valued’ at six times its price of about a year ago.

I don’t understand how a buy-now-pay-later company, that loses in excess of $100-million a year, can have a market value of circa $30-billion – twice as much as the Coles Group and more than three times more valuable than Qantas.

I guess it’s just a function of demand. If people want something badly enough, the price goes up. I wonder if the people investing in crypto or BNPL understand these markets better than I do? I hope so.

Lately, there’s a bit about the old economy I’m having trouble understand­ing – the extraordin­ary escalation in the price of farmland.

Earlier this month, a good sized parcel of land in east Wimmera changed hands for about $20,000 per hectare, or in the old language, $8000 per acre. That means it at least doubled in three years.

On the face of it this is good news. With a couple of clicks of the calculator the net worth of average Wimmera farms has gone up several million dollars.

But what else has changed? Has the productive value of that land suddenly improved? Has the price of grain commoditie­s reached a new high that will remain forever? Is it true we will never see a drought again?

I think the answer to these questions is no. So what’s driving this rapid increase in land price? It’s easy to shrug and point to market fundamenta­ls – good old supply and demand. And that’s true. A couple of good seasons, strong commodity prices and cheap debt are all fuelling the demand.

But I can’t help wondering if the market is getting this right.

I’ve always felt we have elements in farming for many where ‘size’ does matter. We want a big farm, big header, the biggest tractor.

But is size the only game in town? Is this syndrome leading to decision-making based on emotion rather than logic?

I don’t think there are clear answers to this, but we should at least ask ourselves these questions before heading to the next land auction.

Perhaps this is a good time to consider investing in assets outside agricultur­e; create an alternate income source as a hedge against the tough times that will come.

Perhaps we should consider moving along the value curve by investing in another enterprise within our farm business.

Perhaps though, with farmland we’re happy to play the long game. When the music stops at least we’ll know where to find the farmland. Might be harder to find the crypto.

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