The Elbert Files: Reading Iowa's farm economy
Friday, August 15, 2014 6:00 AM
The Iowa farm economy is sending mixed signals, as it often does.
In the last two years, corn prices have fallen from above $8 a bushel to below $4.
In many industries, a collapse of that magnitude would set off sirens and produce headlines written in letters two inches high.
But in farming, the change has captured little attention.
In fact, if you choose to believe it – and a lot of people don’t – the value of farmland is continuing to climb, increasing 9.4 percent in Iowa in the past year, according to a U.S. government report released Aug. 1.
But the problems are real.
A story in The Wall Street Journal in late July was headlined “Corn Farmers Face a Cash Crunch.” It warned of the “first sustained slump in a decade,” and said that with corn below $4 a bushel, “many growers this year likely will fail to cover their costs for the first time since 2006.”
The Journal article appeared during the week I was on RAGBRAI, marveling at all of the new farm mansions along the bike route across northern Iowa. Many had to have carried price tags in the upper six figures. A few probably topped $1 million. I also saw a lot of new buildings for on-farm storage of grain and construction of new high-tech animal confinement structures.
So which is it? Is Iowa agriculture headed back to the bleak 1980s, or is it gathering stream for another boom?
I posed that question to the smartest farm economist I know, Iowa State University’s Neil Harl.
“Farmers are the world’s best economic citizens,” Harl said. “Given half an economic incentive, they will increase production every time and drive the price back down and destroy their own prosperity.”
But, he added, there is more wealth in rural Iowa today than ever before. At $8,716 an acre, he said, Iowa’s 30.7 million acres of farmland is worth $267 billion. That’s more than six times the combined value ($40 billion) of Iowa’s 21 largest publicly traded companies.
And because of the consolidation that’s occurred since the 1980s farm crisis, that wealth is now in fewer hands, which is why there are so many new mansions in rural Iowa.
It’s not unusual for family farm operations to own land worth tens of millions of dollars, Harl said. And those who own or are buying land are protected to a degree by today’s low interest rates, he added.
“The people who are getting squeezed are the ones who signed up to pay cash rents of $300, $400, $500 an acre for two, three, four years out ... because they were convinced the golden age had come to stay,” Harl said.
“I’ve been predicting for some time that we can have a 5 percent decline in farmland values,” he said, “but not a disaster like the 63 percent decline between 1981 and ’86.”
Three factors drove farm prices up in recent years, he said:
• Dry weather in some regions in 2012 and 2013, which reduced supply.
• Biofuels, which siphoned off a significant portion of the corn crop for ethanol production.
• And increased per capita incomes in developing nations. As incomes rise in China, India and other poor nations, a disproportionate share of the increase is used to buy food, much of which comes from the United States, Harl explained.
“But we never have a very long-standing spike up in commodity prices, because farmers increase production,” creating surpluses, he said.
In recent decades they’ve done that by planting higher-yielding seeds, building soil fertility with additional fertilizer and increasing the number of plants per acre.
Their efforts continue the cycle, which creates new mixed signals.
The Depot at 4th, 100 4th Street, Des Moines, Iowa 50309 | (515) 288-3336 | © 2016 Business Record. All Rights Reserved. | Legal disclaimer
Software © 1998-2016 1up! Software,
All Rights Reserved