According to the data from Economic Research Service, farm real estate comprises nearly 79% of total U.S. farm assets in 2000. Since much of the current attention is focused on the residential real estate and subsequent credit crisis, it is high time to look at another important market, farm real estate. Agricultural land values typically vary from state to state, depending on the quality of soil and demand for its use.
In this article, I compared the average farm real estate values for three states, Iowa, Illinois and Indiana for the period between 1970 and 2008 (see the figure below). These three states together are responsible for more than one third of total corn and soybean acreage in 2008.
Data Source: USDA
The average farm real estate value for these three states in 2008 was $4,485 per acre, an increase of 14.65% when compared to the previous year. Since 1970, farm real estate values have declined only five times during the period 1982 to 1987. Starting from 1991, farm real estate values have increased continuously in all these three states without registering even a single year drop in prices.
Between 1991 and 2004, average increase in farm real estate value was 5% where as the last four years have witnessed, an average increase of approximately 15% per year. If you look at the current agricultural commodity prices, both corn and soybeans have declined nearly 50% from their peak in 2008.
Given the current weakness in financial markets including the commodity sector, are we heading into the first decline in farm real estate sector in recent years?
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