Cropland in the Midwest is losing its value as the downturn in the agriculture economy continues, according to a number of surveys by agricultural economists. Record-high crop prices contributed to record-high land values in 2012 and 2013, but now, that party is over.
"Now what we have is [an] overproduction, oversupply issue," says Wendong Zhang, an Iowa State University economist.
During the boom years, Zhang says, farmers ramped up production so much that even considerable demand hasn't been enough to prevent a drop in commodity prices. That fall contributed to the bursting of the farmland bubble.
Zhang annually conducts a survey of Iowa land values that found an average loss of nearly 6 percent this year. Regional data from other surveys show similar trends across the Midwest and into the Great Plains. But Zhang says there is some variability, with regions that rely almost exclusively on row crops harder hit than those with livestock and crops.
In the Northern Plains states, Kansas, Nebraska, North Dakota and South Dakota, the U.S. Department of Agriculture found land values fell .9 percent between June 2015 and June 2016. Corn Belt states (Illinois, Indiana, Iowa, Ohio, Missouri) saw a 4.3 percent drop in that time period.
In Iowa, the central and west central crop districts had the biggest losses while land in the southeast fared better.
Still, Zhang says, "The take home message is all nine crop reporting districts show a loss, there's no district that got spared this time."
This three-year trend is the longest stretch of falling cropland values since a five-year stint in the 1980s, which makes many in farm country shudder. In the '80s, many farmers went out of business, unable to repay debt after a crash in the value of their land.
"We're better suited this time," Zhang said. "We probably won't see a replay of the 1980s farm crisis."
He says that's thanks to several factors:
- the 2000s saw several years of high income for farmers before the downturn,
- interest rates are much lower than they were in the 1980s,
- farmers overall have less debt than they had then,
- borrowing requirements have changed to prevent over-leveraging, and
- the federal farm safety programs are stronger.
Zhang says his survey projects both commodity prices and land values are likely to have small gains and losses in the coming years before stability is regained, perhaps by 2020.