National Public Radio’s “Marketplace” recently had an interesting piece on the current appreciation in agricultural land values. 

It turns out that ag land has appreciated relative to other assets and continues to appreciate at a level that has attracted investors such as MetLife, TIAA-CREF, and John Hancock.

This in turn has attracted the attention of the Federal Reserve, and, the Fed is worried. What’s worrying the Fed is the potential fall in land value if this turns out to be another real estate “bubble.”

For those of us who lived through the 1980s’ agricultural crises this is also a concern. During the 1980s “leverage” was the downfall of many. When land prices tumbled, many could not pay the banker. Farms and rural banks failed.

Especially worrisome, Jason Henderson of the Kansas City Fed said he’s hearing about farmers leveraging the purchase of new farmland. They are using the accumulated appreciated value of their current land holdings to finance new land purchases, just like was done during the late 1970s. The question is whether we have failed to remember what happened in the 1980s when the bubble burst.

Leveraging an investment is not necessarily a bad thing if a farmer can weather a bad year or two or three and pay the notes when they come due. However, prices, the weather and land prices have to cooperate to ensure this strategy does not turn against a person.