Farm income in Iowa shot up an incredible 76 percent between 2010 and 2012, fueling a prosperity that rural Iowa had not seen since the 1970s. The gain was double the average increase (38 percent) for the entire country. 

But now the farm economy is in decline. The U.S. Department of Agriculture estimates that total farm income for the nation will fall 3.4 percent this year. There is no estimate yet for Iowa, but it’s reasonable to expect at least a double-digit decline. 

Iowa farmland values peaked earlier this year as grain prices collapsed. Iowa corn today sells for 40 percent less than it did at the beginning of the year, and soybeans are down 8 percent for the year. 

That’s on top of one of the worst drought years we’ve seen in some time.

There are many reasons for the decline in farm income. Some are structural; changes in export markets, for example. Others, like the drought, are nature-related. Still others – food stamps and ethanol legislation – are political. 

Unless you’re a farmer, or work for a farm equipment manufacturer, you probably haven’t felt the downturn. 

This is not like the farm crisis of the 1980s, which significantly reduced the number of farms and banks in Iowa and changed forever the face of agriculture. 

That earlier crisis pushed a lot of Iowa’s rural population into cities. Today, those former farmers and their farm kids work in finance or for high-tech manufacturers and other businesses that help insulate urban Iowa from the farm economy.  

But farming remains a key part of Iowa’s identity, even though farm income accounts for only 4-6 percent of the state’s personal income. 

And agriculture remains an outsized driver of Iowa’s economic well-being because of the way farm dollars travel through the economy. 

We know, for example, that farmers are experts at tax avoidance. 

During good years, like 2011 and 2012, farmers plowed as much of their crop receipts as they could back into farm-related purchases of new equipment, machinery and technology, moves that significantly reduced their income taxes.

But those purchases did a lot of good. They benefited local truck and equipment dealers and seed salesmen and others on up the line to the ultimate manufacturers, companies that include Deere & Co. and DuPont Pioneer. 

Farm income may not be a big piece of the Iowa economy today, but farming and farm-related manufacturing are, accounting for nearly one-fourth of Iowa’s gross state product in 2011, according to Iowa State University economist Dave Swenson. 

Farm income is also a significant factor in state tax collections because of the way it primes the spending pump for local economies. When farmers have less taxable income, so do others in rural Iowa. 

Reduced farm income is already being factored into state tax projections, even though it has yet to show up in tax payments and may not do so for many months. 

The relationship between farm income and taxes is “one of the more esoteric aspects of farm accounting,” according to ISU’s Neil Harl.

“There can be a significant lag,” said the state’s premier farm expert, “between harvest and when a crop shows up as taxable income.”

Farmers can, and often do, delay selling until well into the next crop year in hopes of obtaining a better price, Harl said.

Also, many collected crop insurance payments in 2013 because of low yields and other weather-related problems. 

Accounting rules allow those payments to be deferred for tax purposes for up to a year, Harl said. 

For those and other reasons, the impact of lower crop prices has been largely muted so far. 

But make no mistake, Harl said, it is coming.