Interesting musings on the rise of farmland P/E ratios to historically high levels:
Back in the late-1970s the farmland market had gone hog-wild with prices going way beyond current rents on the theory that "they aren’t making any more of it." Well, as it turned out in 1980-83, the realization sunk in that: (1) There was plenty of farmland, and (2) There were no more "greater fools" willing to buy in at 2% returns (or a 50:1 P/E ratio). The bubble burst, farmland tanked, and the farms I didn’t buy in 1980 for $3,000 to $4,000 per acre could be bought in the mid-1980s from lenders or on the steps of the courthouse for $440 to $755 per acre with farmers willing to rent for $60 to $70 per acre.
…As I was taking down productive, rentable farmland by a nod of the head at auctions in 1986-87-88, the good old boys were looking at their cowboy boots and kept their hands in their pockets for fear that a twitch might be mistaken for a bid. Farmland historically has sold at a 4% or 5% or 6% rent return/yield on price, or P/Es in the range of 18 to 24 to one. Today farms in my neck of the woods will yield less than 4% on price, having P/E’s above 25:1 and are over-priced at historic norms.