Market News & Headlines >> Farmland: Rhythm of the 1970s?

History may not repeat itself, but it does sometimes play a reprise, Jason Henderson, director of Extension at Purdue University said at USDA’s Ag Outlook Forum. Right now the rhythms in the farmland market are riffs on post-WWI, post-WWII and 1972: Doubling of ag exports, strong ag prices, low interest rates and rising land values. 

The question, of course, is will the coda (end of a musical piece) of this cycle end in the same disastrous way as the 19070s run up. While Henderson is concerned about falling net farm incomes, expected to slide from over $101 million to $70 million over the next 7 years, combined with an increase in interest rates likely beginning next year, he thinks this round will end in a less toxic way.

For one thing, the Federal Reserve is widely broadcasting its moves this time; last time, the rapid rise in interest rates came as a shock. For another, it doesn’t appear farmers are leveraging their equity – contrary to both the most recent farmland boom/bust and consumers heading into the mortgage debacle in 2008. 

Henderson did note concern regarding the bump in farm real estate debt – up 8% in the past year at commercial banks and 9% at Farm Credit. “If farmers are paying cash for land as we’ve been hearing,” why is debt rising?” he asked. We’d conjecture that it may have been to make those last-minute purchases of capital investments before accelerated depreciation expired Dec. 31 – especially if farmers weren’t binning production instead of cashing it in. 

But debt-asset ratios are still at very safe levels, the coming slide in grain values and increasing interest rates have been well publicized, so all in all, a potential decline of as much as a third isn’t likely to put farmers out of business as we saw the last time around. Given the long-term outlook is being advertised as quite positive, the question then will become “When will investors see a buying opportunity?”