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Will farmland values keep booming?

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  • Jason Henderson
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    Abstract

    Lean supplies, strong export activity, and vibrant demand both at home and abroad have pushed crop prices to record highs, offsetting today’s spiraling production costs. As a result, farm profits and investments have soared, and farmland values have boomed. ; But commodity markets in agriculture can change directions abruptly—and so agricultural bankers and farm analysts naturally question the sustainability of today’s prosperity. The current agriculture boom is strikingly similar to those of the 1970s and mid-1990s, when the good times quickly faded as crop supplies increased, the dollar strengthened, and export activity weakened. One particular danger is that rising farmland values could be accompanied by greater financial leverage, increasing the industry’s vulnerability to a drop in income, as in the 1980s. ; Henderson discusses current farmland value trends and analyzes the factors underlying the recent surge. He concludes that the recent surge in farmland values tracks expected gains in crop returns. At the same time, however, an unexpected surge in production costs or a drop in crop prices could undercut farmland values and pose a financial risk to the farm sector. Thus far, however, the industry’s debt levels are up only modestly, helping to mitigate the risks of a drop in farm incomes.

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    File URL: http://www.kansascityfed.org/Publicat/ECONREV/PDF/2q08henderson.pdf
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    Bibliographic Info

    Article provided by Federal Reserve Bank of Kansas City in its journal Economic Review.

    Volume (Year): (2008)
    Issue (Month): Q II ()
    Pages: 81-104

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    Handle: RePEc:fip:fedker:y:2008:i:qii:p:81-104:n:v.93no.2

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    Related research

    Keywords: Farm income ; Farm produce ; Agricultural prices;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Charles H. Barnard & Gerald Whittaker & David Westenbarger & Mary Ahearn, 1997. "Evidence of Capitalization of Direct Government Payments into U.S. Cropland Values," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(5), pages 1642-1650.
    2. Duffy, Michael & Johanns, Ann M., 2005. "Estimated Returns to Iowa Farmland," Staff General Research Papers 12396, Iowa State University, Department of Economics.
    3. Henderson, Jason R. & Gloy, Brent A., 2008. "The Impact of Ethanol Plants on Land Values in the Great Plains," Proceedings: 2007 Agricultural and Rural Finance Markets in Transition, October 4-5, 2007, St. Louis, Missouri 48148, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
    4. Henderson, Jason R. & Gloy, Brent A., 2008. "The Impact of Ethanol Plants on Cropland Values in the Great Plains," Working Papers 51080, Cornell University, Department of Applied Economics and Management.
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