Farmers are complaining once again this year that they are being squeezed by higher costs for the things they buy -- fertilizers and fuel as well as sky-high interest rates on the money they often borrow against their expected crop -- while prices for the things they sell are falling.
Nevertheless, the value of the farmers' biggest asset, their land, continues its inexorable climb upward, in large part because individual farmers keep buying it to expand the size of their oeprations. Non-farmers are buying, too, since based on the record of the last 10 years, farmland is an excellent investment.
In the 12 months ended in February, U.S. farmland values increased an average of 14 percent, the same as the year before, the Agriculture Department reported recently.
Since 1970, the average value has jumped 226 1/2 percent, nearly 2 1/2 times as fast as the general rate of inflation. The value has doubled in 12 states, including Maryland, since 1975.
Moreover, the current average value of an acre of farmland, $640 is probably well below what the the average acre of farmland is selling for these days, according to John F. Jones, a USDA expert who compiles the figures.
The estimates of land values are obtained in a twice-yearly survey of up to 20,000 farmers throughout the nation except for Alaska and Hawaii. They are based on the assumption that farms, if sold, would remain intact. In fact, Jones says, larger tracts are usually broken up and the smaller parcels bring higher per-acre prices.
The highest values are generally in the Northeast, with New Jersey leading at $2,400 an acre.
The lowest average value was in New Mexico, where it was estimated to be only $112 an acre. But even that is up 166 percent from 1970's figure of $42 an acre.
Maryland, at $2,249, ranks fourth in the country, behind New Jersey, Rhode Island and Connecticut. In addition, farmland values in Maryland shot up an estimated 25 percent last year, the second largest increase among the states.
Virginia ranks 16th out of the 48 states, with a value of $942 an acre. That represents only a 9 percent increase in the past year, but a 229 percent rise from the 1970 figure of $286.
In the Corn Belt, Illinois leads the way with an average value of $1,929 an acre, almost triple the $490 average of 1970. Sales of prime agricultural land in Illinois have topped $4,000 an acre in some cases, however, with farmers paying such prices to use the land for agriculture purposes.
Most of the biggest gains last year occurred in the Mississippi Delta states, with values up about 20 percent in Arkansas and Mississippi and a whopping 29 percent in Louisiana.
A major influence in the Delta area undoubtedly was the large surge in cotton prices that occurred during 1979. Any time the prices farmers receive for their crops rise, farmland values usually rise, too, because of at least two factors.
First, the higher prices encourage farmers to expand their operations, often by buying more productive farm equipment that will allow them to farm more acres without having to hire additional labor.
Second, the higher income gives them additional money to cover part of the purchase price. Meanwhile, as this process increases the market value of farmland generally, the farmers can borrow other funds using as collateral their increased equity in the land they already own.
Whenever the federal government steps in to prop up farm commodity prices -- as it may do this year in the wake of the price-depressing effects of the partial embargo on grain sales to Russia -- it usually drives up the price of land as well as adding to farmers' current incomes, according to most agricultural economists who have studied the question.
For those farmers who acquire land in the future, that means the cost of one of their major inputs will have gone up -- which, of course, means pressure from them for still higher commodity price supports.
Until recently, farmers would acknowledge this process but go on to stress the old adage that farmers "live poor and die rich" with inheritance taxes often forcing their heirs out of farming.
But since 1976 that has changed. A tax bill enacted that year changed the inheritance tax law to allow the value of farmland left to a member of the farmer's immediate family to be based not on current market prices but instead on a calculation tied to the cash rent it would command if rented for agricultural purposes.
This process knocks down the value for inheritance tax purposes from, say, $1,500 an acre to something on the order of $300 an acre, That happens because owners who rent farmland, like farmer-owners themselves, normally must accept a large portion of the return on their land in the form of appreciation in its value rather than in current income. In other words, the rent rarely reflects the true value of the land.
The value of an estate can be reduced by up to $500,000 in this way.
In addition, as long as the land stays in the family and is farmed, the inheritance tax payments can be stretched out for 15 years with interest of only 4 percent charged on the unpaid balance.
Thus, for farmers, farmland has become an even more attractive investment, since it can be passed on to their families with the government taking only a small bit. And that, naturally, helps push up farmland values, too.