A New Iowa Farm Crisis?

Iowa State University recently released information on the rental price of land as compared with the average price of corn and the data has ag economists buzzing about the potential for the next Iowa farm crisis.

The statistics show that land value has been on the rise over the past five years, with the average cash rent of corn acres rising from $183/acre in 2009 to $270/acre in 2013. Additional data shows that Iowa farmland has risen in value from approximately $4,500/acre in 2009 to approximately $8,200/acre in 2013. Meanwhile, corn prices are down approximately 45% over just a year ago with more declines possible if the proposed rollbacks in renewable fuels take hold.

Alan Featherstone, ag economist at Kansas State University, says that a repeat of the 1980s could occur if Iowa farmland suffered from a 65 percent increase in interest rates and a 15.7 percent decrease in the value of production. Such a shift would result in more farmers seeking to sell their land. And since only 1 percent to 3 percent of land is bought and sold each year, the slightest increase of land coming onto the market could greatly upset the current equilibrium, which would create a bust similar to the 1980s.

Nonetheless, while there are many similarities to the time period leading up to the 1980s Iowa farmland crisis, there are also a few stark differences, which may cause farmers and analysts to breathe a sigh of relief. For example, 78 percent of Iowa farmers are currently debt free. The high percentage of debt free farmers combined with the revenue protection portion of crop insurance could serve as an economic cushion, should land prices continue to rise as corn values start to decrease.

Only time will tell if we will enter into an Iowa farmland bust, however, if corn prices remain steady, some analysts remain hesitantly optimistic that we can avoid a repeat of the 1980s farmland bust.

Comments are closed.