The Iowa State extension economist who conducts the annual farmland survey says he doesn’t agree with others who speculate that the increase in land values could be another “speculation bubble” like Iowa experienced in the 1970’s. Economist Mike Duffy revealed Wednesday that farmland values were up an average of 16-percent, but he says there are legitimate reasons behind the increase.
Duffy says his personal feeling is that the fundamentals involved dictate the increase, as there have been high commodity prices that have increased over 30%, there’s record low interest rates, and a demand for land with a limited supply. The increase in prices in the 70’s eventually led to a bubble that burst in the 1980’s leading to farm foreclosures and other problems.
Duffy says another indicator is the values dropped last year, while in the 70’s land values went up for eight straight years without a downturn. Duffy says when you look at the incomes in that period, the high values weren’t justified. He says it was a time of the “tractorcade” protest over commodity prices in Washington, D.C. He says it was a time of poor farm income and land values continued to go up. Duffy says the land deals are also much different than than the time before the 80s downturn.
He says a lot of the deals today are being done with cash or with relatively low debt levels. Duffy says when we came out of the 1970’s about three-quarters of the land had debt against it, but a recent survey showed only about two thirds of the land had any debt against it. While there was a period earlier in the decade where land was being purchased for investment purposes, Duffy says 70% of the people in the recent survey say they are purchasing land to farm, making them the primary purchasers.
“And farmers don’t buy land like investors, farmers buy land to own it, and the land becomes part of their retirement plan, it becomes a part of their legacy, it becomes a part of their base of their operation, and this is another fundamental change that we’ve been seeing. Duffy says he doesn’t see any immediate concerns about the market falling out from under farmland.
“I’m not saying we don’t need to be concerned about it, but it’s not something we need to lose any sleep over,” Duffy says. He says government policies surrounding the use of ethanol are keeping corn prices up and that is something that has to be watched. He also says inflation could cause problems, but there is not an immediate worry we’ll see a repeat of the 1980’s farm crisis.