As more and more farmers find themselves in debt thanks to falling prices for corn, wheat, and other agricultural commodities, many are opting to leave the sector entirely. According to economists, the Farm Belt of the United States, traditionally considered to be the central states of the Midwestern U.S., like Iowa, Kansas, Minnesota, Nebraska, and the Dakotas, could have fewer than two million farms by the end of this year. At the same time farmers are departing the industry, farmland values are falling. As is always the case with boom-bust real estate cycles. However, one farmer’s loss will likely be another’s opportunity.
According to the Wall Street Journal, the farmland value slump “is an opportunity [for] farmers with low debts and enough scale to profit from last year’s record harvests.” WSJ analysts predict farmers will likely attempt to rent or buy up land from neighbors who are struggling. Which could prevent the looming bust from reaching its full potential. And will almost certainly eliminate the odds of the present decline in farmland values from hitting lows as problematic as the early 1980s. When farmers faced prime lending rates of 21.5 percent (1981) and had to pay these high rates in order to buy equipment, seed, and supplies to remain in business. In the wake of such a crisis, about 2.2 million farms remained.
Although most economists expect farmland values to hold up better during this farm crisis than the disaster in the 1980s, farm incomes posted record highs in 2013. They warn that U.S. farming’s dependence on its ability to export commodities, like wheat, could create a problem in coming years. China, for example, has historically purchased large grain imports from the U.S. But last year the Obama administration accused the country of limiting those imports “to the detriment of U.S. farmers.” The USDA has announced recently that it will pay billions in financial assistance to struggling farmers to help them survive this downturn, but a long-term export solution is not yet in place. Dan Basset, president of AgResource Company, an agricultural research firm, warned international competitors, like Russian farmers, can easily undercut U.S. farmers on the global market thanks to a strong dollar. He added, he does not believe wheat will be a viable export in another five years. Although the federal government has issued a very different official forecast.
As the latest “farm bust” evolves, it will likely reshape the rural areas of the central Midwest. When farmers leave the industry and leave larger, consolidated farms in their wake, many small towns eventually fold as their population moves elsewhere. As the number of owners of farmland decreases, the potential for trouble in the future increases; since a large farm folding can represent a much bigger issue for local economies and for agricultural output. Some analysts warn this could create a much bigger problem 10 years down the road. While others simply say the industry and the farmland sector will, like all other industries and sectors, continue to evolve.
You can read more of Carole’s coverage of this and other topics at Self-Directed Investor News.
About the Author
Carole VanSickle Ellis serves as vice president of research and analysis at the Self-Directed Investor Society, helping investors “declare independence from Wall Street.” Contact her at editor@bryanellis.com or visit sdiradio.com.
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