Wednesday, June 1, 2011

Quick Note: The Gold/Cropland Ratio

Again, it appears that the average price of U.S. cropland has been increasing over the past decade, but this is only when priced in U.S. dollars. The data can be seen in Figure 1, which also presents the average price of gold. Notice that the price of gold is accelerating upward, whereas the price of cropland is flattening out. This indicates that there will be a time when the trend changes and cropland will become a prime buying opportunity. The timing can be deduced from Figure 2, when the gold/cropland ratio reaches a minimum. We are still waiting for this to occur...

Figure 1: USDA data on the average U.S. cropland price and the average yearly price of gold in dollars.
Figure 2 shows that the price of cropland is decreasing at an average rate of -0.375 oz Au/year, or it costs 0.375 ounces less each year to buy the same acreage. Note that the last few data points seem to indicate an accelerating downward trend, but we'll have to wait and see if this holds. With the recent double dip in housing officially confirmed we may see an accelerated rate of descent for the gold/cropland ratio.
Figure 2: Ounces of gold required to purchase an acre of US cropland.

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