What is in this article?:
- Today's farmland appreciation brings memories of the 1980s
- Are some differences
• 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.
• During the 1980s “leverage” was the downfall of many. When land prices tumbled, many could not pay the banker. Farms and rural banks failed.
Are some differences
Granted, there are some differences between today and the 1980s. Today we have some safety nets that were not in place during the 1980s. Crop insurance has improved considerably and for select commodities we have Direct Payments (DP).
At present, commodity prices are high and if a farmer makes a crop it’s likely there will be no problem in paying on a loan. But, commodity prices do change and individuals do experience crops losses from bad weather, insects, and other causes.
The amount of agricultural land is relatively fixed today. With demand high, prices are naturally going to be bid up. The question to be asked is to what extent is this a normal demand for ag land that’s required to produce food and fiber and to what extent is this a speculative demand that will evaporate when other investment opportunities present themselves.
Individual farms vary in the capacity to carry debt and get through the bad years. Crop/livestock operations vary in size and what they raise. Each individual entity should carefully evaluate what level of risk they can bear if times turn bad. It’s easy to get carried away with the good times, but no one wants a replay of the 1980s.
Footnote: I went to work for the Texas Agricultural Extension Service in 1981 as a green behind the ears Farm Management Specialist. Counseling farmers in trouble I naively suggested to a farmer that liquidation of assets was a possible answer to solving his financial problems. His question to me was, “Who do I sell my machinery and land to? My neighbors are in the same boat.” I didn’t have an answer then and there still isn’t a good answer to that question.
That fixed the farm crises of the 1980s forever in my mind.