Editor’s note: Some people say today’s skyrocketing land prices are on a bubble. This article looks at a family farm’s land price swings over the last 150 years.
The farmland bust of 1892 found an Iowa farmer living in a cave somewhere in Texas with his pet raccoon. Following the Civil War, which ended in 1865, he had purchased a square 640-acre farm for $10 per acre. Eventually he would lose this farm located near Churdan, Iowa.
There was an earlier nasty depression in 1872, affecting mostly businesses in the eastern part of the United States. In the developing Midwest, farmers were less affected by this depression. The years of 1872-92 saw the prairies of the Dakota Territory broken up for the first time for production of wheat. Large farmers could be found tilling 10,000 acres with steam engines. Some of these monster tractors were equipped with lights and operated 24 hours a day.
• By 2011 we saw not just a boom, but a sudden explosion in Iowa farmland values.
• Some say the high prices land is selling for is amazing; some say it’s crazy.
• This is more likely just another cycle, as farmland price cycles come and go.
My grandfather was given the opportunity in 1892 to buy the Iowa farm lost by the man living in Texas. Farmland in those days was often sold by the farm, not by the acre. My grandfather paid $2,200, or about $3.50 an acre, for the farm. At the time only 70 acres were under cultivation with the remainder being original prairie bluegrass. Luckily for my granddad, the value of farmland greatly increased for the next 30 years. This time span has been referred to as the “Golden Era of Farming.”
Golden Era of Farming
Shortly after World War I ended in 1918, the Bernard Westervelt bank in Churdan, one of two in town, paid $400 per acre for a farm. This was about the time Will Rogers (American cowboy and humorist 1879-1935) was quoted as saying, “Buy land. They ain’t makin’ any more of the stuff.”
Unlike many other businesses, a huge financial downturn hit farmers in late-1920 causing farm commodity prices and farmland values to plummet. Farmland dropped to $125 an acre and corn prices declined from more than $1 a bushel down to 35 cents. Twelve years later, in 1932, both the Westervelt bank and farm were lost in the worst depression ever to grip the whole country. Once I asked my dad if he lost any money in this bank. He said he lost some but owed about the same amount so figured he broke even.
In rare cases some failed banks would come after customers for unpaid loans. But it seemed no one had any money, and these efforts to collect dried up quickly.
Giving away farmland
In 1933 times were just terrible. Farmland in northwest Iowa was actually being given away. To get land for free, one only had to visit the courthouse in Rockwell City. There, they would give you a farm if you would agree to begin paying the taxes.
The next year, 1934, saw the beginning of a horrid drought. A reprieve from the dry conditions in 1935 found the following year worse than 1934, with summer temperatures reaching 115 degrees F. At night farmers slept in their front yards. I asked my dad about mosquitoes; he said they were no problem, they were burned up.
Getting back to 1932, my grandfather Oscar Stotts was on his death bed and broke at 72 years of age. The section of land he bought 40 years earlier had been clear of debt for some time, but like many farmers he had mortgaged it heavily to buy other farms. He assigned a loan of $56,000 from Bankers Life of Des Moines on a second mortgage to my parents on 480 acres. The remaining quarter, or 160 acres, of the section was given debt-free to his wife. Through hard work and sacrifice, my parents and two older siblings retired the mortgage in 1940.
With a raging ongoing war in Europe by this time, better-paying jobs and the availability of jobs in the United States, farmland values began to rise to $100 to $150 per acre. At war’s end in 1945, some farmland south of Pocahontas in northwest Iowa was selling for $250 per acre.
Even with dollar-a-bushel corn through much of the 1950s, farmland held a steady climb. The McQuire Auction Service of Holstein was selling land for $400 an acre. Then in 1965, land near Farnhamville was bringing $500.
Land values continued a steady rise up to $700 to $900 and a few hundred more until about 1978 or 1979. Suddenly, they hit $3,000 and $4,000. Shortly later a neighbor of mine paid $4,200 per acre for a farm.
Then the big bust became a reality, causing farm foreclosures and write-downs. In 1981-82 we had the same land selling for $700 to $800 an acre.
Fast-forward to 2009; one can note once again a steady climb in farmland values. Then suddenly by 2011, we see not just a boom, but an explosion in farmland prices. Some say it is amazing; some say it is crazy; I see it as just another cycle. These price cycles appear to become wilder as the cycles come and go.
Iowa State University Extension economist Mike Duffy speaking at a Dec. 14 press conference in Ames, said he believes farmland prices will continue to climb, but not at the 32% level as in the past year. He went on to say farmers remember the 1980s when land prices fell.
A crucial difference this time is that farmers are carrying much less debt. In the 1980s, it was 80% debt load; today it’s less than 50%. Duffy also said the demand for food today, particularly from developing nations, is a likely cushion against a 1980s-style collapse.
It’s just another cycle
Although I do not have the knowledge and creditability of Dr. Duffy, I do take a bit of a different view of the super-high farmland prices. I think to know where we are going in land values, we must know where we have been in the past. Therefore, judged on 150 years of family history, lessons on farmland values taught to me years ago at ISU by professor Bill Murray, and my own experiences, if $10,000- to $20,000-per-acre land prices remain, I fear the day may soon arrive for two things to happen.
My first fear is only agricultural corporations and other wealthy investors will have title to the land. My second fear is the possibility of a worldwide depression. If corporations do take over, we might see legislation like we saw with the FDR administration of the early 1930s. In that day, farmland was falling into the hands of large insurance companies, which held farm loans for millions of farmers.
The New Deal under President Franklin D. Roosevelt forged laws making it illegal for these insurance giants to own farmland. The performance of the economy and weather-related problems could trigger a worldwide depression.
History tells us sky-high and rock-bottom prices are a fact in farmland values. It is not a matter of if they will occur; it is only a matter of when.
Spencer farms near Goldfield and writes about his true-life experiences growing up and living in rural Iowa.