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Farmland prices increase at concerning rates

Fishawk
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Farmland prices in mid-Missouri have reached record highs - more than doubling over the last 10 years. But historical trends may give farmers reason for concern.  

Cattle tramp through the mud on Nathan Martin’s Centralia farm.

There are about 360 head here.  There’s corn and soybeans growing, too.

Martin bought the land in 1983, and has been working it full-time since.

It was after prices started dropping, and bottomed out three years later.

“We had friends in the community and church and so forth that were several years older than me that were greatly affected and very negatively and a lot of farmers went out of business, a lot of sales and so forth,” Martin said.

That’s because in the 70s, prices for farmland rose quickly.  Department of Agriculture data from the time shows they quadrupled between 1971 and ‘81.  By 1986, the market corrected, and values dropped by about a third. 

Martin fears we could be heading down that path again.

In the last five years, Missouri farmland prices have gone up 33 percent.  Research from the Kansas City Federal Reserve shows that’s because commodity prices have increased, exports have increased and interest rates are low.

Credit Haoyang Zhang / KBIA
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KBIA

Kurt Hollenberg is a real estate agent who specializes in farmland.

“We have a lot more buyers than sellers because the farmland has been through the years a secure investment for the investor,” Hollenberg said.

And, he says when interest rates are this low, it’s an attractive time to invest – increasing demand.

That’s disconcerting to Martin.

He’s been seeing shrinking profit margins, and says he’s concerned today’s low interest rates may promote too much borrowing.  

“Some real long term stability in the interest rates, that’d be as positive to know that. If we’re making some land or capital purchases to know that we’re going to have low interest rates for a long time,” Martin said.

Martin’s concern is that profit margins are shrinking as operating costs increase. That could present a problem for farmers who are heavily leveraged.  If they start having trouble, the dominoes could tumble.

While farm prices continue to increase in a pattern similar to the 70s, Farm Bureau President Blake Hurst – a farmer himself, from northwest Missouri -- has a positive outlook.

“I’m optimistic about agriculture. I’m optimistic about the future of the demand for the things we raise...It’s impossible to know it’s a bubble until it bursts,” Hurst said.

According to MU Extension economist Ronald Plain, even if it is a bubble, the consequences will be less severe than the bust of the 80s.

“We haven’t seen as long or as extensive an increase in land values this time around as we did in the 1970s so we don’t have as far to fall as we did last time.” Plain said.

Right now, Martin says he’s holding tight… raising the cattle and cultivating crops, and waiting to see what happens.