Low Commodity Prices, High Land Values: Is the Next Farm Crisis Brewing? | Article

The past few years have seen high commodity prices and a reinvigorated interest in farming and agriculture from the general public. On all fronts, farming in the United States seems to be undergoing a renaissance. Yet, some signs point to an end to these boom times. Corn and other commodity prices have plummeted in recent months, while land values in agricultural communities continue to rise.

The current mix of low prices and high land values is a dangerous mix. On average, 33.8 percent of U.S. farmers rent their land, and these renters are not shielded from land value fluctuations. At the same time, land values in agricultural communities have risen sharply. In Iowa, land value has risen an incredible 330 percent since 2000, as calculated by Iowa State University. Higher rent prices on the land translate to higher costs to non-owner operated farms and even lease terminations.

At the same time, farmland as an investment has piqued the interest of institutional investors. In a recent survey of investors, farmland is ranked as the second most popular investment after energy. While commodity crop prices are low now – investors are betting that high prices will return. Farmland value has also been more stable relative to the housing market. This trend has many worried about the future of farm communities, and if another farm crisis is on the horizon.

The farm crisis of the 1980s still looms large in many rural communities. The most severe depression in agriculture since the Great Depression, the farm crisis originated in the Midwest but eventually touched virtually all farming communities. A boom and bust cycle in commodity prices, new international trade laws, high debt to asset ratios and two severe droughts all contributed to the devastating crisis. As a result of the farm crisis, thousands left farming, accelerating the already occurring trend of rural depopulation.

The question of how to avoid the next farm crisis has no easy answers. What is clear is that land is one of the largest assets of farms, and trends in land ownership by farmers is one indicator of the health of agricultural communities. Whether a farmer owns or rents their land affects every aspect of the farm. According to USDA, “Ownership arrangements can affect farmland values … including production decisions, adoption of technologies, and conservation practices that can enhance the productivity of the land.” Indeed, research has found that non-owner operators are less likely to adopt conservation measures on the farm.

According to Drake University law Professor Neil Hamilton, this trend of institutional purchase of farms “runs counter to what … has historically been a major component of America’s policy toward agriculture, which was that we were better off if the land was in the hands of the people that farmed it.” Ray Gaesser, an Iowa farmer, commented that, “my biggest concern is that they [investors] don’t care so much about the land. They care more about the investment.”

The question remains of how to find agricultural policies that work for both farmers and consumers -- to produce food that’s healthy and available, while making sure you don’t have to bet the farm to do so.