Low interest rates and record income per acre have driven farmland values much higher over the last decade. The increase has led to concerns of a repeat of the farm crisis of the 1980s.
"Back in the 1970s we got way above trend growth, and it looks like that is what is happening again," said University of Missouri Extension agricultural economist Ron Plain. "Last year we were more than $500 per acre above trend for the average acre of Missouri farmland."
The 1970s run-up of land values ended in the early 1980s with a collapse of farmland prices. While Plain says there is a possibility of a land price bubble in the future, a drop in farmland value today would not have the same catastrophic impact it had 30 years ago.
"In 1981 Missouri farmland prices were 150% above trend, with the trend going up 6% per year," he said. "Without a price drop, it would have taken a long time to close that gap."
Better off than we were in the 1980s
Today, Missouri farmland values are 22% to 25% above a 6% growth trend. It would take only four years of steady land prices for the trend to catch up with actual prices.
"So we are not nearly as vulnerable," Plain said. "The downside risk isn't anywhere near what it was in the early 1980s."
A factor in the 1980s bubble popping was a huge increase in interest rates. Plain says many farmers took on a lot of debt and became heavily leveraged.