If the Bubble Busts, How Long to Recover
There has been a lot of talk lately in the press about whether farm land prices are entering a bubble phase similar to farm land in the early 1980’s or tech stocks in the late 1990’s.
I decided to take a look at farm land prices for good Iowa farmland from 1950 to 2010 and see how long it took for prices to recover back to the old peak.
Good farmland in Grundy County, Iowa peaked out in 1981 at approximately $2,947 per acre. It bottomed in 1986 at $1,047 or a drop of about $1,900 or 65%. It took from 1986 until 2003 or 17 years for the average price of farm land in Grundy County to top $3,000. From start to finish, it took about 22 years for the cycle to finish. Now, what is not factored into this is that farm land continued to return cash rent each year. This probably averaged a 3% or so return each year.
Most crashes from any bubble usually correct from about 50-65% each time. Therefore, if prices are around $10,000 right now and this is the top, farm land may not fully stop sliding until it hits $3,500 – $5,000 in value.
I am not suggesting that we are in a bubble right now, however, all prices of stock, bonds, commodities and farm land do tend to go in cycles, so if we are in a bubble, it may take several years for prices to fully recover.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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