Implications of Macroeconomic Instability for Agriculture Income and Land Values

From 2006 through the first half of 2008, U.S. Agriculture enjoyed a period of economic prosperity not seen since the 1970’s. World economic growth was robust, stimulating food demand; the growing use of major crops such as corn in the production of biofuels increased demand and contributed to overall upward pressure on commodity prices; and a reduced value of the U.S. dollar helped expand exports to record levels. This achievement was reflected by new records for most income and balance sheet measures. Even after adjusting for inflation, 2008’s forecast of net farm income rivals the all-time record established in 1973. Escalating land values and conservative borrowing resulted in consecutive years of record farm equity and historically low debt-to-asset ratios. The economic environment changed quite dramatically in the latter months of 2008. After reaching unprecedented highs during the summer, commodity prices receded to postharvest 2007 levels, prior to the run-up. Input costs continued their surge, with each year’s crop costing more to produce. And perhaps generating the most concern; the emergence of a worldwide financial crisis that has shown no signs of abating so far this year.