Farmland values have increased considerably in recent years, with double-digit annual growth in some states. Between 1994 and 2004, national average farm real estate values (including land and structures) increased between 2 and 4 percent annually in inflation-adjusted terms. In 2005 and 2006, they increased by 16 and 10 percent, respectively. And while the modest dip in national average values in 2008-09 suggests farm real estate values were not immune to the effects of the recession, average values for the Nation during the period mask wide regional variation. In 31 states, farm real estate values increased over 2007-09; declines were largely concentrated in the more urbanized states along the East Coast, where residential and commercial development opportunities strongly influence farmland values. In 2010 and 2011, states in several regions, including the Corn Belt and Great Plains, experienced significant growth in cropland values--including a 31-percent spike in Iowa from the third quarter of 2010 to the third quarter of 2011--while many states in the Southeast and Northeast experienced declines.

With a value of $1.85 trillion, farm real estate accounted for 85 percent of the total value of U.S. farm assets in 2010. Because farmland represents the major asset for most U.S. farm businesses and is the largest single investment in a typical farmer's portfolio, changes in farm real estate values affect the financial well-being of agricultural producers. In addition, farm real estate serves as the principal source of collateral for farm loans--enabling farm operators to purchase additional farmland and equipment, finance current operating expenses, and meet household needs.

ERS researchers recently examined several factors that affect farmland values, including the role of farm business earnings; macroeconomic factors, such as interest rates; and changes in competing land markets. Although the recent rates of increase in farmland values are reminiscent of the boom experienced in the late 1970s, when high returns and Federal policies that increased incentives for investing in agriculture fueled a bubble, recent high farmland price increases are not occurring under the same conditions that contributed to the earlier boom. Current farmland values, at least for the farm sector as a whole, appear to be supportable given recent trends in farm earnings and interest rates.