Will farmland values keep booming?

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.