In July 2012, Mike Duffy at Iowa State University posted an article “Comparing the stock market and Iowa land values: A question of timing” on their Ag Decision Maker website. We’ve repeated what he did, using Oklahoma data for pastureland and non-irrigated cropland. The U.S. Department of Agriculture regularly reports agricultural land values and associated cash rents for Oklahoma. Oklahoma farmland values have shown annual increases every year since 1997 for both cropland and pastureland. Non-irrigated cropland values have shown gains for 33 of the past 43 years. In similar fashion, pastureland values have increased every year but 9 times during the same period since 1970. Values in 2012 for both categories reached record territory in nominal terms and have more than doubled since 2000. However, in inflation-adjusted terms, the 2012 cropland value is not a record and is still 30% below the peak set back in 1980. In contrast, pasture prices have kept pace with the rate of inflation and are roughly equal to 1980 values.
The composite value of the stock market, as measured by the Standard & Poor’s 500 Index (S&P) average, has recovered from the disastrous 2008 year. Even though the S&P lost 34 percent of its value between 2000 and 2008, its overall record has been impressive since 1970. Stock values rose from 90.05 in 1970 to a June 2012 close of 1,323.48, a 13-fold increase despite the late-2000s recession.
The returns to land or stock shares are composed of two parts. First is a capital gain or increase in value. (In some years, a capital loss occurs if values decrease.) The second component is yearly returns. Yearly returns are affected by both revenue and costs associated with the property.
Land ownership has annual costs not associated with stocks. For example, property taxes must be paid and should be included in a comparison of owning stocks or farmland. In addition, if farmland is held as an investment and not by an owner-operator, a professional farm manager may be involved and the fee for this service should be considered. Some maintenance and insurance with farmland not associated with owning stocks is also necessary.
The data used for this analysis comes from various sources. The Oklahoma non-irrigated cropland and pastureland values come from the USDA/National Agricultural Statistics Service (NASS). Land tax estimates per acre were calculated using data from the Farm Credit Associations of Oklahoma.