Farmland values are increasing at rates not seen since the 1970s. Two recent land value surveys reported a 22 percent increase in Nebraska from February 2010 to February 2011, and prices up 25 percent in Iowa from March 2010 to March 2011. (Johnson, Wilson, and Van Newkirk, 2011; Iowa Farm and Land, Chapter 2, 2011) Other surveys have reported double digit increases in farmland values throughout the Midwest and Great Plains states. (Federal Reserve Bank; Schnitkey, 2011)

Soaring farmland values have led many people to raise the question of whether or not farmland is on a speculative ‘bubble’ and due for a price correction. The rapid increases in land values during the 1970s were followed by considerable personal, financial and social disruption when the values collapsed in the early 1980s. The 1970s was a truly unique and unprecedented period in U.S. history. Starting in 1972, real farmland values in the United States rose more than 7 percent a year for 10 consecutive years. In comparison, real land values in the United States rose 3.2 percent annually from 2005 to 2010 as farmland values fell during the recession in 2009.

Over the past year, farmland values have rebounded, but questions regarding the sustainability of these elevated land values remain. This paper discusses current farmland value trends and the changes in farmland ownership. Strong economic fundamentals—rising incomes and a limited number of farms for sale—appear to be driving recent land price gains. In addition, much of the farmland is owned by older farmers with little intent to sell. Farmland values will be shaped by economic returns and the highly volatile markets make the future path of farmland values very uncertain.

Current Farmland Value Trends

Farmland values have fluctuated over time, especially during the 1970s, 1980s and the past five years. Based on USDA data reporting January 1 farmland values, from 1950 to 2010, after adjusting for inflation, U.S. farmland values reached a record high in 2006, with a nominal peak in 2007 (Figure 1).

After easing in 2009, farmland values are again on the rise. Based on quarterly data from the Federal Reserve surveys of agricultural credit conditions, U.S. farmland values appreciated sharply in 2010. In fact, in some states, farmland values jumped more than 15 percent during the year (Figure 2).

The increase in land values is continuing in 2011 and in some states the rate of increase is even accelerating. Participants attending the 84th annual Soil Management and Land Valuation Conference held at Iowa State University May 11, 2011 projected that Iowa land values would increase 33 percent from November 2010 to November 2011. Since 1964, conference participants have accurately projected land values within 2 percent of Iowa State University’s land value estimate, despite badly missed projections during the increases in the 1970s and the decreases in the 1980s.