Turns out that betting the farm wasn’t such a bad idea after all. An annual survey of Iowa farmland values found that prices went up 5.1 percent in the past year, continuing a decade-long bull run. In 2004, an acre of Iowa farmland cost $3,250 (in inflation-adjusted dollars) on average. Today, an acre averages $8,716, an increase of 168 percent.
The party may be coming to an end. Farmland values are directly correlated with farm income, which in turn derives from commodity prices, says Michael Duffy, an Iowa State University economics professor who conducts the annual survey. And commodity prices have been dropping. Corn was down 33 percent for the year as of October, and soybean prices dropped 11 percent in the same period.
At the same time, the rate of increase in land values has slowed, even declining in some areas. Of the nine years out of the past 10 in which farmland values have increased, 2013′s 5.1 percent increase was relatively tepid, the first single-digit rise since 2003.
Duffy says it’s not likely that farmland values will suddenly crater. “It’s going to be more akin to a tire that gets a nail in it, a slow letdown,” he says. “A lot of it will depend if commodity prices stay in this downward trajectory or they flatten out.” Terry Kastens, an agricultural economist at Kansas State University, disagrees. He said Tuesday that U.S. farmland values are at a “tipping point” and could fall as much as 10 percent in 2014 as commodity prices flatten out.
Unfortunately, history is little help. According to Duffy, this current runup is the third “golden era” for Iowa farmland values in the past 100 years. The first one ended in a slow decline in values from 1921 to 1933, and the second with a sudden collapse from 1981 to 1986.