Linked In
News In
Linked In

You are viewing your 1 complimentary article.

Register now to receive full access.

Already registered?

Login | Join us now

Relief for land owners - price fall is reminiscent of Great Depression

Twitter Linkedin eCard

Good news for US farmland owners – the retreat in values looks more like that in the Great Depression than it does the 1980s' decline.

At least, to go by values in the Midwestern agricultural powerhouse of Iowa, the top US corn and soybean-producing state.

Iowa State University, in an annual farmland price update for the state, said that prices had fallen by 5.9% this year – the first time since the 1980s that values have fallen for a third successive year.

The drop in prices - to an average of $7,183 per acre, down 17.6% from their 2013 peak – has left many people "concerned about a potential farmland bubble burst", the university said, citing the dent to values from recent US political and economic developments, besides weak crop prices.

"There are legitimate reasons to be cautious, especially with the rising uncertainty in agricultural exports and likely rise in interest rates."

Indeed, many observers are expecting the Federal Reserve on Wednesday to raise the key US interest rate by 0.25 points, in the face of falling unemployment and firm US economic growth.

'It is not unwarranted to be worried'

Furthermore, "there is a concern for some producers over possible financial difficulties due to continually declining income and accumulation of debt from banks and other sources".


Down 5.9% in 2016

Down 17.6% since 2013

Up 7.1% over past five years

Up 124% over past 10 years

Up 227% over past 20 years

Source: Iowa State University

"It is not unwarranted to be worried… Farmers and land owners who bet on the high commodity prices lasting and aggressively expanded or borrowed heavily will face significant problems."

Indeed, it looks like the correction in prices is not over yet, with Dr Zhang cautioning that "looking ahead, land values might continue to adjust downwards in the next year or two", a performance which would be "consistent with the stagnant corn and soybean futures prices and potential rise in interest rates".

Further price drops in 2017 and 2018 would see the current price retreat match, in terms of length, the decline in values in the 1980s, when Iowa prices dropping continuously from 1982-86.

'No speculative bubble'

However, in value terms, there was cause to believe that the current retreat will not match that of the 1982-86 period, during which Iowa prices slumped by 64%, in a decline fuelled by a sharp rise in interest rates at a time of elevated farm debts.

"Iowa farmland values do not appear to be in a speculative bubble that caused the dramatic declines in the 1980s farmland values or the urban real estate market in the mid-2000s," the university said.

"Farmers accumulated much more income, especially cash, during the most recent decade" than they did during the previous two "golden eras" for land prices, in the 1910s and 1970s.

"Farmers used to be able to borrow up to 85% of inflated, market-based land value in the 1970s, while now they can only get less than half of cash-flow based land values.

"It appears most farmers will be able to weather the storm as the market prices find a new equilibrium."

Great Depression vs 1980s

The likely outcome is that downward pressure on farmland values "will continue and play out next year and beyond, but it will more than likely be a rational and modest correction as opposed to a sudden change".

The current scenario appears more like the extended and relatively gentle drop in land values which started in 1921 and extended into 1933, in the midst of the Great Depression, than the "dramatic collapse" of the 1980s.

"We might see this farm downturn resemble the trajectory of the 1920s farm crisis in the sense that there might be a long, drawn-out decline in the farmland market."

By Mike Verdin

Twitter Linkedin eCard
Related Stories

Evening markets: Soybean futures gain, cotton prices jump on US data

Initial USDA forecasts for crop supply and demand for 2018-19 lift soy and cotton prices, but are not so well received in the cotton market

Morning round-up, Friday February 23

French crop ratings... Russia bans imports of Belarus milk... clampdown on foreign purchases of French farmland...

Evening markets: Argentine moisture slips up soymeal rally. But weather revives wheat

Meal futures dip, a little, for the first time in 12 sessions. But wheat futures gain, as drought spreads in Kansas, and cold reaches Europe

Morning markets: Ag futures ease, as traders await key 2018 forecasts

US officials will later on Thursday issue the first of a series of forecasts for US crops in 2018-19. Markets are cautious in the mean time
Home | About | RSS | Commodities | Companies | Markets | Legal disclaimer | Privacy policy | Contact

Our Brands: Comtell | Feedinfo | FGInsight

© 2017 and Agrimoney are trademarks of Agrimoney Ltd
Agrimoney is part of AgriBriefing Ltd
Agrimoney Ltd is registered in England & Wales. Registered number: 09239069