Farmland values have been the “Rock of Gibraltar” of the agriculture balance sheet. Farmland represents $2.8 trillion of the $3.5 trillion of total farm assets. This asset has been the investment of choice of senior citizens, farmers and ranchers in retirement, and hedge funds.

Historical evidence suggests that farm real estate has been a strong investment. From 1910 to 2017, the value of this asset has appreciated or remained flat 79 percent of the time. This percentage increases to 88 percent when examining the period from the beginning of World War II to present day. This statistic includes the period in the 1980s when land values were down by more than 50 percent. This negative position during the 1980s lasted for less than four years.

Let’s take a walk on the dark side and determine what type of events or convergence of events would take the air out of the land market. Although possible, it is very doubtful that one simple event will collapse the house of cards.

Commodity agriculture is dependent on exports. For example, approximately one-seventh of total U.S. dairy production is exported. A trade war, increased tariffs, or sanctions on U.S. products could be catalysts for land depreciation. Another element to consider is that the strong U.S. dollar would further suppress agriculture export potential from a competitive standpoint.

Next, couple these events with a rise in interest rates. Spurred by a strong U.S. economy, an interest rate increase of 100 to 200 basis points is a factor needing consideration. High interest rates not only impact margins on cash flows and profit, but they increase the attractiveness of alternative investments outside of agriculture.

As interest rates rise and investments outside of agriculture produce higher returns, then the likelihood of investors moving their funds into other investments in the U.S. and abroad becomes greater. Hedge funds tend to move money very quickly to balance the optimal return with the associated risk.

The eight-hundred-pound gorilla among all these factors is more conservative lending requirements from agricultural lenders and regulators. Some producers are on their second or third round of refinancing their debt. If regulators and lenders tighten loan restructuring, then this could be a big gust of wind that tumbles the house of cards.

Finally, a major collapse of the U.S. or global economy would place pressure on highly leveraged economies and could have an impact on the value of real estate assets.

These are some of the catalysts that could create a change in land values. However, there is always the chance that an unexpected event, otherwise known as a black swan event, could initiate a change in the value of real estate.