Farmland Prices Skyrocket and Federal Crop Revenue Insurance Plays a Role

Have you heard the news? Farmland values continue to escalate at alarming rates. I’m pretty sure it doesn’t catch you by surprise.

The Ag Letter, published by the Federal Reserve Bank of Chicago, showed a 16 percent increase in farmland values in 2012 for the district. Their district includes Illinois, Indiana, Iowa, Michigan, and Wisconsin. Iowa saw the highest increase, a 20 percent gain from Jan 2012 to Jan 2013.

The 2012 Farmland Value Survey by Michael Duffy, Iowa State Extension Economist, reported a 23.7 percent increase in Iowa farmland values from 2011 to 2012. This is the third year in a row values have risen above the previous decade-long average of 15 percent per year.

Duffy’s report also examined who, on average, was purchasing the land. The vast majority of the land, 78 percent, was purchased by existing farmers. Investors made up 18 percent of the sales. New farmers claimed 3 percent and 1 percent fell into the “other” category.

Nebraska land values rose as well. In preliminary findings, Bruce Johnson, an ag economist at the University of Nebraska, showed an average increase on all farmland of 25 percent for the year ending Feb 1, 2013. Farmland values have doubled over three short years ago.

A US Department of Agriculture study shows a higher number yet for Nebraska. Their increase is over 35 percent.

This all comes in the middle of the worst drought since the late 1980s and the hottest year ever! Yes, record increases in farmland values as the same states experienced drought and record-breaking temperatures.

What is driving this boom? Higher crop prices that lead to higher gross revenue? Absolutely! But federal crop revenue insurance also plays a role.

If one corporation farmed every acre in America, the government would pay 62 percent of its crop insurance premiums on every acre. Large, well-capitalized farms bid their revenue guarantee and their premium subsidy into every additional acre they add to their operation.

That makes it easier for the nation’s largest farms to bid up land values and drive their smaller neighbors out of business. Worse yet, recipients of insurance premium subsidies, unlike other farm payments, are not required to practice soil conservation.

Let’s see. Record farm income is the main driver of record land values. At the same time, we’re staring down continued budget cuts. I have a simple question. Why not place a $40,000 cap on premium subsidies for federal crop revenue insurance?

A cap doesn’t mean farmers can’t get crop insurance on every acre they farm. It just means taxpayers won’t be footing the bill once the cap is reached. It would save money and eliminate the extra incentive to bid up land values.

Makes sense to me. How about you?