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| Things are different now than in the 80’s. The high participation in the crop insurance program will definitely soften the blow since it protects farmers from having a single year cash flow crisis. I fear the day when the equities markets start a strong fast bull run. All the non-farmer land investors could start to sell the farmland that’s currently yielding a return of 3-4% to take advantage of 20-30% returns from stocks. If that happens (lots of land getting offered for sale at the same time), farmland values could drop substantially in a short amount of time. If this actually happens there’s the real chance of negative equity or at least low enough equity that would severely impact a farmers borrowing power.
I’m personally expecting a strong bull run in the not so distant future. There’s lots of money just held in cash right now. Warren Buffets company is currently holding 20% in cash just waiting for the right moment, and he’s not the only one sitting on that much cash. Just think about all of the farmland investors watching the stock market erupt. They could dump the land for 70% of current value and be better off within 2.5 years (assuming 20% returns). Drop that 70% to 50% and they’ll be better off in about 4 years. This scenario doesn’t include any potential increase in land values, but on average farmland values have been flat for the last decade.
If you currently have 50% equity in your land and the appraised value drops by 50% you’ll have a banker that needs to talk with you. It could actually be an opportunity for farms that currently rent land. Rental rates will most likely drop and they’ll have the chance to purchase land at a discount if they have cash piled up.
Definitely a black swan event but a farmer should try to be prepared for it
Edited by beanpole 3/9/2024 06:58
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State of Ag Banking
