Feature Article: 

Do Record Farmland Prices Portend Another 

Steep Downturn for Agriculture and Farm Banks? 

The agricultural crisis of the early 1980s remains a vivid 

memory for many in the farming community. Hundreds 

of farm banks failed during that period, and thousands 

of families lost their farms. Several factors came together 

to create the crisis; however, the massive run-up in 

farmland prices in the late 1970s, followed by the sharp 

decline in land prices between 1981 and 1992, significantly contributed to the adverse effects on farmers and 

their lenders. Today, farmland values are rising at a pace 

reminiscent of the 1970s, raising concerns that another 

agricultural crisis may occur if land prices decline. This 

article briefly discusses some of the reasons for the 

recent farmland price increases and analyzes their 

potential effect on FDIC-insured institutions. 

Farmland Booms Preceded Hardships for Farmers 

and Their Lenders 

Two significant boom-bust cycles in farmland prices 

occurred in the 20th century: one in the first two 

decades of the century and the other in the 1970s. In the 

first instance, strong population growth, improvement in 

railroads and shipping that allowed the opening of export 

markets, and increased productivity through the rapid 

adoption of tractor power all contributed to rising farm 

incomes.1 By 1920, crop prices had more than doubled in 

only five years, and high farmland prices followed.2 

Farmland values were similarly inflated by skyrocketing 

farm income in the 1970s. Strong export demand— 

due in part to rising incomes and growing populations 

in importing countries, and a weak U.S. dollar—fueled 

rapid increases in farm incomes during this period.3 In 

addition, negative real interest rates caused by high inflation spurred massive borrowing for farmland purchases. 

In both instances, strong export demand and growing 

income levels convinced farmers they were experiencing 

1 R. Douglas Hurt, American Agriculture—A Brief History, rev. ed. 

(West Lafayette, IN: Purdue University Press, 2002), p. 221. 

2 Willard Cochrane, The Development of Agriculture—A Historical 

Perspective (Minneapolis: University of Minnesota Press, 1993), p. 100. 3 John Anderlik and Jeff Walser, “Agricultural Sector Under Stress: 

The 1980s and Today,” FDIC Regional Outlook, third quarter (1999), 

p. 18. 

a new era in agriculture that would continue indefinitely. However, the unprecedented demand for U.S. 

farm commodities proved only temporary. In the 1920s, 

the end of World War I precipitated the decline in 

export demand, while in the 1970s, falling demand was 

due to greater global competition and a stronger dollar.4 

In addition, more restrictive monetary policy reduced 

the annual inflation rate from more than 13 percent in 

1980 to less than 2 percent in 1986, further dampening 

farmland prices.5 The distress led to thousands of farm 

bankruptcies, hundreds of farm bank failures, and a 

sustained decline in farmland prices.6 

Farmland Values Have Escalated Sharply, 

Reaching New Peaks 

Farmland values have risen dramatically across the 

United States during the past several years. Between 

1993 and 2003, inflation-adjusted farmland prices were 

quite stable, increasing by 3.0 percent per year (see 

Chart 1). Since 2004, however, prices have jumped by 

Chart 1 

0 

500 

1,000 

1,500 

2,000 

2,500 

In 2008 Dollars, Present Farmland Prices Exceed the 

Two Price Booms of the 20th Century 

Source: USDA National Agricultural Statistics Service. 

$947 

1914 

$1,940 

1981 

$2,350 

2008 

Farmland Price Per Acre (2008 Dollars) 

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 

4 Hurt, p. 221. U.S. farm exports fell by more than half between 1980 

and 1986. Anderlik and Walser, p. 22. 

5 Anderlik and Walser, p. 21. After increasing 80 percent in inflationadjusted terms from 1971 to 1981, farmland values rapidly declined to 

near their pre-1970s level. 

6 Anderlik and Walser, p. 18. There were 297 farm bank failures 

between 1977 and 1993. 

FDIC QUARTERLY 24 2008, VOLUME 2, NO. 4 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Record Farmland Prices 

Chart 2 

0 

20 

40 

60 

80 

100 

120 

140 

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 

Recent Farm Income and Exports 

are the Highest since the 1970s 

Farm Exports 

Net Farm 

Income 

Dollars in Billions (2008 Dollars) 

Source: USDA Economic Research Service. 

an average of 11 percent annually.7 At $2,350 per acre, 

average farmland values are more than 20 percent higher 

than their historic peak of $1,940 recorded in 1981. 

While it would be difficult to quantify the causes of 

higher farmland prices on a local level, several factors 

are driving them on a regional and national scale. Foremost among these is strong farm income, primarily in 

corn-, soybean-, and wheat-producing regions. Other 

contributing factors include the spillover effects of the 

national housing boom, especially on the coasts, and a 

low interest-rate environment. 

Farmers have experienced strong farm income in three 

of the past four years (see Chart 2). In 2008, forecasted 

net farm income is $95.7 billion, second only to the 

record $131.3 billion (after adjusting for inflation) set in 

1973. Export demand for all U.S. agricultural products 

during the past four years has also been strong, with 

2008 exports forecast to be the highest on record.8 

While strong export demand is bolstering commodity 

prices, significant domestic demand for corn-based ethanol is pushing corn and soybean prices even higher. The 

corn ethanol industry, which was virtually dormant for 

more than two decades following the energy crisis of the 

7 All farmland prices discussed in this article have been inflationadjusted to the equivalent in 2008 dollars. 

8 U.S. Department of Agriculture (USDA) Economic Research Service, 

Net Farm Income Forecast, http://www.ers.usda.gov/Briefing/ 

FarmIncome/nationalestimates.htm; Farm Income: Data Files Net 

Value Added (With Net Farm Income), 1910–2007, http://www.ers. 

usda.gov/Data/FarmIncome/FinfidmuXls.htm; and Value of U.S. Agricultural Trade by Fiscal Year, http://www.ers.usda.gov/Data/FATUS/ 

DATA/XMS1935fy.xls. 

1970s, has mushroomed since 2000. Record-breaking oil 

prices and federal legislation supportive of the industry 

have contributed to the growth of ethanol as a lowercost fuel alternative. The proportion of the U.S. corn 

crop used by the ethanol industry grew from 11 percent 

in the 2002 crop year to nearly 33 percent in 2008.9 The 

result has been extremely high corn prices, which have 

spilled over into higher soybean prices as farmers have 

converted millions of acres of soybean plantings into 

corn. Consequently, land prices in the nation’s largest 

corn- and soybean-producing states have increased 

rapidly (see Table 1). 

The housing boom during the first half of this decade 

has also contributed to rising farmland values, especially 

on the coasts (see Table 1). Earlier this decade, developers bought or acquired options for tens of thousands 

of acres of farmland for the incipient housing boom, 

providing a significant nonagricultural source of demand 

for farmland. Florida, for example, where housing development was very strong, ranked first among the states in 

farmland price growth from 2004 to 2007, averaging 

30.5 percent annually.10 

Further, the recent escalation in farmland values 

occurred during a period of low long-term mortgage 

rates. In this environment, financing became much 

cheaper, resulting in lower capitalization rates and 

higher property values. In addition, this period saw the 

global devaluation of the U.S. dollar that increased 

global demand for U.S. agricultural exports.11 

Several Factors Could Derail the Recent Run-Up in 

Farmland Values 

The two U.S. farmland price booms of the 20th century 

grew on expectations that strong farm income and 

exports would continue indefinitely, which raises the 

question, Will the drivers of today’s high farmland 

values prove more enduring? The basic assumption 

behind growing or high farmland values is that farm 

income will also grow or remain high; these expectations are then capitalized into farmland values. If agricultural export demand remains strong, keeping crop 

9 USDA World Agricultural Outlook Board, World Agricultural Demand 

and Supply Estimates, December 10, 2004, p. 10, and October 10, 2008, 

p. 10. 

10 USDA National Agricultural Statistical Service, Farmland Value and 

Cash Rents Reports, various. 11 Craig Elwell, Weak Dollar, Strong Dollar: Causes and Consequences, Congressional Research Service Report, June 13, 2005, pp. 

13 and 17; Nora Brooks and Ernest Carter, Outlook for U.S. Agricultural Trade, Economic Research Service, USDA, August 28, 2008, p. 2. 

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Table 1 

Sharp Increases in Real Farmland Values Continue in Corn-Producing States 

Top 5 

Corn Producers 

Average Annual Growth Rate (Percent) 

Selected 

Coastal States 

Average Annual Growth Rate (Percent) 

10-year 

1993–2003 

3-year 

2004–2007 

1-year 

2007–2008 

10-year 

1993–2003 

3-year 

2004–2007 

1-year 

2007–2008 

Iowa 

Illinois 

Indiana 

Minnesota 

Nebraska 

2.7 

2.1 

3.8 

3.3 

1.7 

12.1 

14.8 

9.6 

12.1 

10.7 

13.3 

11.2 

7.1 

7.4 

14.3 

California 

Florida 

Georgia 

United States 

2.5 

1.1 

4.3 

3.0 

12.9 

30.5 

20.4 

13.1 

4.3 

(3.3) 

(3.7) 

4.8 

Source: USDA National Agricultural Statistics Service. 

prices high, and prices for inputs (such as seed, fertilizer, 

and fuel) stay within a reasonable range, then the 

current values for farmland can be supported.12 

However, if farm incomes return to historical levels, 

either through declining demand or because of higher 

farm operating costs, then farmland values may be pressured downward to reflect lower capitalized returns to 

the land. Concerns about a global recession could cause 

U.S. farm exports, which are currently 70 percent above 

the most recent ten-year average, to return to more 

normal levels.13 As mentioned earlier, falling export 

demand was a contributing factor in both of the U.S. 

farmland busts of the past century. 

Threats to the fragile corn ethanol industry also may 

derail the optimistic price future for corn and ultimately 

affect land values. In the near term, high oil price volatility and declining ethanol prices resulting from rapid 

escalation in ethanol production have squeezed industry 

profit margins.14 As a result, a number of corn ethanol 

plants have closed, while plans for construction and 

expansion projects have been abandoned or delayed.15 

In the long term, political and technological risks could 

also negatively affect the corn ethanol industry. Already, 

there is growing opposition to U.S. government support 

of a 45-cent-per-gallon subsidy for blending corn ethanol into gasoline and a 54-cent-per-gallon tariff against 

cheaper, Brazilian sugar-based ethanol.16 Moreover, the 

12 Jason Henderson, “Will Farmland Values Keep Booming?” Federal 

Reserve Bank of Kansas City, Economic Review, second quarter 

(2008), pp. 88 and 92. 

13 Value of U.S. Agricultural Trade by Fiscal Year, http://www.ers. 

usda.gov/Data/FATUS/DATA/XMS1935fy.xls. 14 Jacqui Fatka, “Biofuel Capacity Outpaces Demand,” Feedstuffs 80, 

no. 45 (2008), p 3. 

15 Chris Blank, “Biofuels Plants Hit Economic Road Block,” Associated 

Press State and Local Wire, October 9, 2008. 16 “U.S. Congress Extends Ethanol Subsidy and Tariff,” Chemical 

News & Intelligence, May 15, 2008; “A Renewed Push for Ethanol, 

Without the Corn,” New York Times, April 17, 2007. 

development of advanced biofuels, such as cellulosic 

ethanol, could displace much of the corn ethanol industry, though it is uncertain when this technology will be 

commercially viable. However, a growing number of 

experimental production plants have begun operation or 

are under construction. 

The recent retreat in the residential real estate market 

coupled with tighter credit conditions may also weigh 

on farmland values. The dramatic slowdown in residential construction has caused demand for raw development land to evaporate, putting downward pressure on 

farmland values in areas that had rapid housing price 

growth. For example, as shown in Table 1, the real 

annual farmland price growth rate in California, 

Florida, and Georgia ranged from -3.7 percent to 4.3 

percent in 2008, well below the 2004 to 2007 growth 

rates. Further, liquidity and credit quality problems in 

the financial sector have caused tightening of lending 

standards overall, and therefore the extent to which 

credit availability was driving farmland prices higher 

likely has stalled or reversed. 

Farm Banks Have Declined in Number and Market 

Share, but Have Higher Risk Profiles Than Before 

the Early 1980s Agricultural Crisis 

Given the similarities between the recent escalation in 

farmland prices and the land price booms of the 20th 

century, it is worthwhile to examine the current condition of farm banks. Specifically, how are these banks 

positioned at this point in the agricultural cycle 

compared with the late 1970s? 

A significant difference is that today, there are fewer 

farm banks nationally than there were in the 1970s. In 

addition, today’s farm banks hold a much smaller share 

of agricultural loans, as agricultural lending has become 

more diffused throughout the banking system during 

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Record Farmland Prices 

Chart 3 Chart 4 

0 

10 

20 

30 

40 

50 

60 

Q2:73 Q2:78 Q2:83 Q2:88 Q2:93 Q2:98 Q2:03 Q2:08 

100 Largest Banks by Asset Size 

Farm Banks 

Other Institutions 

Source: FDIC, commercial banks. 

Note: Rabobank, National Association, a large farm bank, is included in both the 

farm bank and 100 largest banks data series. 

Proportion of Agricultural Loans Held (Percent) 

Farm Banks Hold a Shrinking Share of the 

Bank Industry’s Agricultural Loans 

0 

10 

20 

30 

40 

50 

60 

70 

80 

Q2:73 Q2:78 Q2:83 Q2:88 Q2:93 Q2:98 Q2:03 Q2:08 

Source: FDIC, commercial banks. 

Median Loans-to-Assets Ratio (Percent) 

Farm Banks 

Nonfarm Banks 

Banks Have Invested Greater Shares of Assets 

in Loans over Time 

the past three decades. At the outset of the 1980s 

agricultural crisis, 4,515 banks, nearly one-third of all 

U.S. commercial banks, specialized in agricultural lending.17 These banks represented more than half of the 

industry’s farm operating and real estate loans (see 

Chart 3). Farm banks now represent only 22 percent of 

all commercial banks in the United States and account 

for just 38 percent of all agricultural loans. Also, large 

banks have an increased share of the nation’s agricultural loans, and traditional farm banks have expanded 

into nonagricultural loans. While 99 of the 100 largest 

commercial banks are not farm banks, they hold 26 

percent of the banking industry’s agricultural loans. 

These institutions have diversified loan portfolios, and 

agricultural loans represent a relatively small proportion 

of their capital. Because of their diversified holdings, 

large banks are not as vulnerable to agricultural 

downturns. 

Despite the diffusion of agricultural risk across banks of 

various types and sizes, 1,579 farm banks were operating 

nationally as of June 30, 2008. These banks were 

primarily headquartered in the wheat-, corn- and 

soybean-growing areas in the middle of the country. 

Overall, these banks are relatively healthy thanks to 

strong farm incomes during the past several years. 

Indeed, as of mid-year 2008, farm banks reported historically low farm loan delinquencies, nearly nonexistent 

farm loan net charge-offs, and high levels of capital and 

reserves. However, the one negative aspect of farm bank 

performance is earnings, particularly net interest margin 

(NIM) performance. In 2007, the median annual NIM 

17 For purposes of this article, a farm bank is a commercial bank with 

a volume of farm loans, including loans secured by farmland, exceeding 25 percent of its total loan portfolio. 

for farm banks fell below 4 percent for the first time 

since 1977. 

Despite their relatively healthy condition, farm banks 

have increased their risk profile considerably since the 

1980s. Among the reasons for the increased risk are 

elevated loans-to-assets (LTA) ratios, increased exposure to several types of nonagricultural loans, and lower 

balance sheet liquidity. 

The most striking structural change in farm bank lending in the past 20 years is in the ratio of loans to assets. 

LTA ratios among farm banks are much higher today 

than they were in 1980 (see Chart 4). Farm banks now 

hold a median 64 percent of total assets in loans, up 

from 55 percent in 1980. This trend is not unique to 

farm banks, but instead reflects a similar trend in the 

broader banking industry, as banks have countered 

declining NIMs by increasing the concentration of loans 

on their balance sheets.18 

What makes this trend worrisome is that according to 

research in the FDIC study History of the Eighties— 

Lessons for the Future, LTA ratios were much more 

highly correlated with bank failures than equity levels, 

growth rates, or earnings performance.19 Even though 

18 Richard D. Cofer, Jr., and John Anderlik, “Declining Net Interest 

Margins and Rising Loan-to-Asset Ratios—A Disturbing Paradox,” 

FDIC Regional Outlook, fourth quarter (2000). 19 FDIC, History of the Eighties—Lessons for the Future (Washington, 

1997), p. 281. Researchers examined eight bank performance variables, including loan volume, asset and loan growth, and various 

earnings measures, and found that a bank’s loans-to-assets ratio was 

the best predictor of failure. When ranked according to their loans-toassets ratio, the top one-fifth of farm banks was five times more likely 

to fail than other farm banks. 

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their capital levels are considerably higher, many farm 

banks now have more loans in relation to capital than 

they did in 1980. In addition, because overall farm loan 

portfolios have grown little in relation to asset levels, 

higher LTA levels indicate growth in nonagricultural 

loan portfolios. In fact, farm banks have greatly 

increased holdings of construction and development 

(C&D) loans and residential real estate loans since 

1980. The downturn in the housing market and the 

weakening economy have caused deterioration in these 

credit portfolios. Since June 2006, just as the housing 

market downturn began in earnest, farm loan portfolio 

delinquencies have declined while the median delinquency ratio for nonfarm loans has increased to 2.7 

percent from 2.2 percent. Nearly 25 percent of farm 

banks reported nonagricultural loan delinquencies of 5 

percent or more as of June 30, 2008. 

Finally, farm banks today exhibit lower balance sheet 

liquidity than they did in 1980. The median farm bank 

holds liquid assets of 33 percent of total assets, down 

from 42 percent in 1980. As a result of lower assetbased liquidity sources, bankers are relying increasingly 

on other funding sources, including Federal Home Loan 

Bank advances, correspondent borrowing lines, and 

brokered and wholesale deposits. 

How Susceptible Are Farm Banks to a Downturn in 

Farmland Prices? 

There is little consensus among agricultural economists 

as to the sustainability of high farm incomes and farmland prices. However, it is safe to predict that any significant, overall decline in farmland values is likely to be 

preceded by a decline in net farm income. This combination would cause farmers to have less income with 

which to pay their loans and lower collateral values 

securing these loans. This would be true in any environment, but would likely be magnified given the current 

boom in net farm income and farmland prices. 

However, there is one dramatic difference in farm loan 

underwriting compared with the late 1970s. It does not 

appear that collateral-based lending—relying on farmland values rather than farm cash flow to determine 

loan repayment ability—is nearly as widespread as it was 

leading up to the last agricultural crisis. Many banks 

that failed during the 1980s relied too heavily on collateral-based lending, which put farm loans at risk when 

land prices declined. Subsequently, both bankers and 

regulators have recognized the prudence of cash-flowbased lending. In outreach meetings with the FDIC and 

other federal regulators, farm bankers have consistently 

Chart 5 

-20 

-15 

-10 

-5 

0 

5 

10 

15 

20 

25 

30 

35 

73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 

Farmland Loans—farm banks in continuous operation 

YE 1972 through YE 2007 

Farmland Loan Growth Remains Well below 

1970s Levels 

Farmland Loans— 

commercial banks 

Sources: FDIC, commercial banks. USDA. 

Farmland Prices— 

2007 dollars 

Year-over-Year Growth Rate (Percent) 

said that they have held the line on lending on farmland 

and required solid cash flow numbers. Thus, according 

to these lenders, many of the highest-priced farmland 

sales have been cash sales or have otherwise not 

involved bank financing. A look at recent farmland loan 

growth suggests that farm bankers have been careful to 

avoid overlending for farm real estate; although farmland values have been escalating rapidly since 2003, 

farmland loan growth at farm banks actually declined 

during that time (see Chart 5). 

Still, farm banks have increased their risk profiles, 

primarily by increasing nonagricultural loan portfolios. 

This has left them more susceptible to nonagricultural 

risks, such as the macroeconomic weaknesses that have 

affected residential, C&D, and consumer loan portfolios. 

Moreover, some farm banks have significantly higher 

risk profiles. As of June 30, 2008, 190 farm banks (about 

12 percent of the total) held loan portfolios in excess of 

80 percent of their assets, compared with just 14 farm 

banks in June 1980. Not only do these banks exhibit 

higher credit risk tolerance, but they also have other 

high-risk characteristics. As Table 2 shows, these banks 

hold less capital and smaller loan loss reserves to balance 

greater risk taking. Indeed, these banks hold one dollar 

of capital for every eight dollars of loans, while the 

typical farm bank holds one dollar of capital for every 

five dollars of loans. In addition, high-LTA farm banks 

operate with far less balance sheet liquidity than the 

typical farm bank. Farm banks with high LTA ratios 

also have a greater share of loans concentrated in C&D 

lending than the typical farm bank and have nearly 

three times as much capital exposure. Agricultural loan 

delinquencies at these banks remain very low, in line 

FDIC QUARTERLY 28 2008, VOLUME 2, NO. 4 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Record Farmland Prices 

Table 2 

Farm Banks with High Loans-to-Assets Ratios Exhibit Other Higher-Risk Profiles as Well 

Farm Banks with High LTA Ratiosa All Farm Banks 

As percentage of total assets 

Capital and loan loss reserves 

Median Values (Percent)b 

10.2 11.2 

Total loans 84.2 63.5 

All agricultural loans 34.4 25.4 

Farmland-secured loans 15.4 11.3 

Construction & development (C&D) loans 2.2 0.9 

Commercial business loans 12.0 8.1 

Liquid assets 11.6 32.6 

As percentage of total capital and reserves 

Total loans 831.7 562.3 

All agricultural loans 336.3 227.7 

C&D loans 20.4 7.8 

Loan delinquency ratios 

Agricultural loans 0.5 0.3 

All other loans 2.8 2.7 

C&D loans 5.6 2.5 

Commercial business loans 1.8 1.5 

Annualized growth rates 2004 to 2008 

Total assets 7.5 4.4 

All agricultural loans 10.1 5.6 

Farmland-secured loans 10.5 6.1 

Source: FDIC, all farm banks. 

a Farm banks with loans-to-assets (LTA) ratios exceeding 80 percent. 

b Reported C&D loan delinquency ratios are 75th percentile values, not medians. Both groups report median values of 0.0 percent. 

with the industry; however, their C&D loan delinquencies are more than double the industry average. 

Conclusion 

While it is not clear whether today’s high farmland 

values represent the first act of a boom-bust cycle or a 

new era in farming, bankers must continually assess risk 

in relation to economic events. History has shown that 

rapid spikes in farm income and farmland values are 

followed by significant declines. Recent economic 

evidence may portend a retreat from record farm 

incomes and farmland values. The national housing 

downturn already has led to a decline in real farmland 

prices in coastal states, and increasing risks in the corn 

ethanol industry could deflate farmland prices in the 

nation’s crop-producing states. 

Although the number of farm banks has declined, 

along with their share of the agricultural lending 

market, these lenders still account for one-fifth of the 

nation’s commercial banks and hold sizeable agricultural 

loan portfolios. These institutions are susceptible not 

only to swings in farm incomes and farmland values, but 

increasingly to nonagricultural factors as well. The notso-distant experience of the early 1980s agricultural 

crisis stands as a reminder of the need for vigilance, 

especially during times of agricultural prosperity. 

Authors: Richard D. Cofer, Jr., Regional Manager 

Division of Insurance and Research 

rcofer@fdic.gov 

Jeffrey W. Walser, Regional Economist 

Division of Insurance and Research 

jwalser@fdic.gov 

Troy D. Osborne, Senior Financial Analyst 

Division of Insurance and Research 

tosborne@fdic.gov 

The authors would like to thank John M. Anderlik, Assistant Director, Regional Operations, Division of Insurance 

and Research, for his contributions to this article. 

FDIC QUARTERLY 29 2008, VOLUME 2, NO. 4