Bidders at farmland auctions have their winks and nods on the accelerator. From 1994 to 2004 farm real estate values increased from 2 percent to 4 percent annually. In 2005 and 2006, the acceleration was 10 percent to 16 percent. The brakes were slightly applied in 2008 and 2009, but since then farmland buyers have put the pedal to the metal and have left residential and commercial real estate in a cloud of dust. As the farm sale season approaches quickly, USDA economists set the stage for speed records to be broken.
Farmland is the heart of agriculture, with a value of $1.85 trillion, representing 85 percent of the total value of farming assets. In a newly-published article in USDA’s Amber Waves economic newsletter, economists say farmland, “represents the major asset for most U.S. farm businesses and is the largest single investment in a typical farmer's portfolio, changes in farm real estate values affect the financial well-being of agricultural producers. In addition, farm real estate serves as the principal source of collateral for farm loans--enabling farm operators to purchase additional farmland and equipment, finance current operating expenses, and meet household needs.”
The article, indicates that recent increases in value represent the bubble of the early 1980’s, but, “Current farmland values, at least for the farm sector as a whole, appear to be supportable given recent trends in farm earnings and interest rates.” Interesting, the USDA economists say farmland values and farm incomes are not in lockstep with each other. They say many non agricultural factors have lead to the separation:
- In areas close to urban centers, the value of farmland reflects the returns it could earn from being developed for housing or commercial use when those returns exceed those for agricultural use alone.
- Even in relatively remote areas heavily dominated by agriculture, nonagricultural factors, such as income from hunting leases, may push farmland values higher than could be justified from farming alone.
- In addition, a substantial number of farm operators--about 1.2 million of the Nation's 2 million principal farm operators--do not engage in farming as their primary occupation (for example, operators can meet the minimum criteria for being considered a farm--generating $1,000 in sales of agricultural products in a typical year--by grazing cattle and selling some each year.
- Low levels of farming activity can leave time for working off-farm jobs). While this group of operators controls a significant amount of farmland, it does not generate much income from farming, on average.
- For these farm operators, owning and living on a farm may have less to do with the economic returns to the farm business than with the lifestyle and recreational benefits farmland provides.