A leveling off

When Iowa State University economist Mike Duffy speaks, bankers and farmers listen. He is the leading farmland value tracker in the state, and his Thanksgiving-time reports on annual land price surveys are awaited with bated breath in the ag sector. Duffy recently chatted with Agriculture.com (Successful Farming) about historic price run-ups and subsequent crashes, and concluded with this remark:

“The most important variable to watch is farm income. What happens to farm income will have a direct bearing on land values. … I think some of the factors that created the busts we saw after the past two booms haven’t been as strong this time.”

Duffy refers to two boom-bust cycles and the current boom. The first “golden era” was from 1900 to 1920, when land shot up five times in price. The second was from 1973 to 1981, when farm prices rose by three times. Land values dropped by 73% from 1920 to 1933 as the Roaring 20s quieted to the Great Depression. The second land crash saw land prices drop 63% from 1981 to 1986. During each of those periods, bankers freely loaned and farmers eagerly borrowed to buy land that could only appreciate in price. Or so they thought.

From 2004 to 2012, Iowa farmland prices nearly tripled. Banks were not as easy and farmers not so eager to borrow. Most of the high-dollar buys were with half cash down from existing strong operators looking to expand. Farm income during that period rose 340%.

As farm income stabilizes, absent heavy debt loads, Duffy expects a leveling to occur in land values.

“I do not think land values will continue to increase as they have in the past few years,” Duffy said. “There has been too much pressure put on farmland prices to be sustainable. Farmland value increases of over 60% in two years are not sustainable.

“I think double-digit increases in land values might be over for now. I also think if the projections for income old, then we will see a decline in land values. … I don’t think a collapse is a high probability.”

Many of his colleagues at Iowa State believe we are entering a new world food paradigm that will support Iowa farm income. As soil erodes, productivity declines and population increases, commodity prices should rise. But those dynamics also were in play in the 1980s. Events can disrupt theoretical trend lines. Rising farm income is not guaranteed — far from it. Corn prices that dropped from more than $7 per bushel to just over $4 in a year should be testament enough that farming does not defy gravity. It is reassuring to hear Duffy say he does not see a crash ahead. Sometimes the headlights on that freight train can be obscured.

Cruz and the Iowa GOP

Ted Cruz was all the rage in Iowa Republican circles last weekend. He came to dinner in Des Moines to a sold-out crowd. Chuck Grassley was mugging it up with him. Terry Branstad kept a respectful distance. State Party Chairman AJ Spiker called the Cruz show a “smashing success.” Next morning, he was up with the roosters and Steve King for a pheasant hunt near Le Mars. Senate candidate Sam Clovis of Sioux City was there hoping to be seen and surely heard but not shot. Branstad excepted, they congratulated him for being a true patriot of the contemporary Tea Party style: for reading Dr. Seuss, among other things, for 21 hours on the Senate floor in vain hopes of repealing the Affordable Care Act. They ate green eggs and drank in themselves. King called Cruz a straight shooter.

So it went with a blast that the flocks began to form and the Iowa Caucus season opened.

One would think that Cruz would triumph with Iowa’s Republicans were the caucuses next weekend. This from the man who would claim to carry the spear that lanced the party’s popularity bubble. Never in the history of Gallup has the Republican Party been so dimmed in the eyes of the public, including Iowa. Branstad holding his nose in the second row is a sign that others will come. The caucuses are not held until a year from next January.

It could be a great test for the Iowa Republican Party if Ted Cruz and Chris Christie — the Republican from New Jersey who embraced President Obama in the aftermath of Hurricane Sandy — made the caucuses their battle, mano a mano. That confrontation could settle for some time the chasm on display at the Lincoln Dinner last Friday evening. Such a match-up could refocus the state party on being a state party, and redefine the Republican Party for a new generation.

We hope Cruz comes back to do some fishing on Storm Lake. And we hope Christie is right behind him. Because, the Iowa Caucuses will actually determine if the Republican Party wants to win or just shoot, and if it is a party that wants to govern or just burn things down in the name of patriotism.