In a normal farm crisis, you could depend on two things - falling land prices and lots of land for sale as cash-strapped farms go into foreclosure. This crisis is different. Land prices are holding steady and in some areas have actually edged up. And very little land is for sale.
To gauge the situation, Soybean Digest spot-checked the Corn and Soybean Belt and found that land was hard to come by and rarely a bargain.
"By and large, land prices have remained strong," says Gary Bredensteiner, director of farm management operations at the University of Nebraska.
There are many reasons for this, notably billions of dollars in special federal aid that has sustained farm incomes in the face of bleak commodity prices. "It's the big reason the ag sector is not more depressed than it is," says Phil Burns, board chairman of Farmer & Merchants National Bank, West Point, NE.
In addition, many farmers have far lower debt levels than in the 1980s, when farms were swept away by a crash of both land and commodity prices. And interest rates are lower, so debt loads are easier to handle than in the '80s, when double-digit interest rates were common. Moreover, high yields in many regions have helped offset lower commodity prices.
But farmland prices have also gotten a boost because non-agricultural buyers are competing for farmland. These buyers include real estate developers and individuals who simply want a piece of the countryside to live on. Unfortunately, these buyers are undermining ag real estate by reducing the supply while helping to drive the price of land beyond what it's worth as farmland.
A case in point is Ohio. Factories, shopping centers and subdivisions are devouring land at an alarming pace. "You can't go anyplace but where there is some kind of construction going on," says Allan Lines, Ohio State University ag economist.
But perhaps the biggest threat comes from urban dwellers with a yearning for a simpler rural lifestyle. In Ohio, these buyers are snapping up 5- to 40-acre farmland plots and slapping houses on them. To see how insidious this process is, look at Columbus, one of Ohio's fastest-growing metropolitan areas.
In Columbus proper, which has more than 600,000 residents, population density averages nearly 3,500 people per square mile. But if you put families of four on 40-acre sites in the countryside, you can fit just 64 people in a square mile. At that rate, it doesn't take long to ravage farm country.
The appetite for land is such that Ohio farmland prices have actually risen during the farm crisis. Average price per acre was $2,100 on Jan. 1, 1999, up from $2,040 a year earlier, says Lines. He expects farm prices to hold steady at $2,100 in early 2000.
Of course, the new buyers represent a potential bonanza for farmers who cash in. One farmer sold 300 acres on the east side of Columbus for $9 million, says Lines. But rising prices cut two ways. The farmer planned to use his proceeds to buy a bigger farm elsewhere in Ohio. Unfortunately, he couldn't find land at an acceptable price.
There is a solution for new millionaires who want to stay in farming - take the proceeds and move to another state where the farm real estate dollar goes farther. Some Ohio farmers are already doing that.
"We've got Ohio farmers who are buying farmland in Illinois because they think it's a better buy," points out Lines. But the migration of farmers and capital is having a spin-off effect by pumping up prices in other states.
In Illinois, for example, prices have dropped only modestly - roughly 5-10%, says Dale Lattz, farm management extension specialist at the University of Illinois. He adds that farmers in suburban Chicago have profitably sold their farms for development, then reinvested in downstate farms to avoid taxes on the proceeds. "That's one reason prices have held up," says Lattz.
Ultimately, however, the rising price of land may play out like a game of musical chairs. Each time the music stops, some farmer who wants to buy more land may find himself without a seat - beaten to the land he wants by a non-farm buyer with deeper pockets.
Of course, the scenario could change if the general economy sinks. Many Americans have been able to realize their rural housing dreams because much of America is awash in money - especially from rich returns in the booming stock market. If the stock market sinks, that could dry up some of the money that has financed the residential invasion of farm country.
Or the farm crisis could drag on until so many farms fail that rural land prices drop as they did in the 1980s. Or Congress could pull the plug on further aid, which could quickly force the weaker farms to fail.
"If the current commodity prices last another two or three or four years and we have little or no government subsidies, we would have land come on the market, or we would see significant downward changes in real estate values," says bank chairman Burns. But so far, the economy continues to surge and Congress will likely be reluctant to cut farm aid in an election year with the presidency and the U.S. House of Representatives up for grabs.
"The fact that it's an election year probably will have a positive impact on Congress voting for additional farm aid," says Lattz.
In that case, the current scenario may continue to play out. Farms may hold on despite low prices. Meanwhile, farmers who want to expand their holdings may find land in short supply and too costly for farming even when it can be gotten.