What’re you waiting for?

Three or four years ago, people began to suggest that farmland prices were getting too high for their taste. Some suggested that “maybe I’ll wait and get them at a lower price later.”

This week, a co-worker asked if any of those people had succeeded in buying at a lower price. I couldn’t think of any. Some came back later and bought land at a price that was higher than the price they said was too high. The rest are still waiting. So it’s worthwhile to ask what it will take to bring back the prices they missed.

Let’s do the math. We’ll use Iowa’s Farmland Value Survey, just for illustration purposes, since Iowa State’s University Extension and Outreach Land Values Survey gives us data going back several decades. In Iowa, prices have risen every year except one since 1999. (The one exception was 2009, when the average price per acre declined 2.2%.)So let’s picture a fellow who got interested in farmland in 2009, when land in the average county was selling at $4,371 per acre. (I actually know a number of such “fellows,” but we’ll talk about one just to keep it simple.) Then he watches it rise to $5,064.

“Too much, too fast,” he says. “I’ll get it when the price backs off a bit.” So he waits, and a year later it’s at $6,708. He remembers that $4,371 price and decides to wait a bit longer. Fast forward to the latest average price in the survey: $8,296 (with high-quality land significantly higher). Still waiting.

So what’s it going to take to get back to that level? Prices will pretty much have to drop by half. That hasn’t happened since the 1980s, when we had a combination of inflation, record interest rates and a soybean embargo that created a “perfect storm.” But for all of our problems today, there’s no reason to expect anything similar.

Beyond that, farmland values have been remarkably resilient through turbulent markets that hammered every other investment class. Remember what happened to the stock markets after the 9/11 attacks? Iowa farmland increased by a nice 3.7% for 2001 and 8.2% in 2002. It took the worst financial crisis since the Great Depression to produce the piddling 2.2% loss in 2009 (mentioned earlier).

So friends are waiting on a price that isn’t coming back. Maybe they have their money under the mattress, or sitting in CD’s at 1.5%. Or they’re taking their chances in the stock, bond and commodity markets.

Will 2013 repeat the 23.7% increase we saw on Iowa farmland in 2012? Probably not, though anybody who’s looking for that kind of quick profit doesn’t need to be buying farmland anyway.

But it’s even more unlikely that we’ll see a return to the prices of five years ago. If you’re waiting for those, you may as well stop looking. On the other hand, I think farmland continues to be a great investment at the current price levels, and those who buy today will enjoy solid returns and stability for years to come.