Agriculture's Boom-Bust Cycles: Is This Time Different?
Download the PDF version of this article
U.S. agriculture is notorious for its boom and bust cycles. During the past 100 years, shifts in U.S. agricultural export activity triggered fluctuations in agricultural profits. Soaring wartime food demand during the 1910s and 1940s boosted U.S. agricultural exports and farm prosperity. A spike in U.S. agricultural exports during the 1970s sparked another surge in U.S. farm incomes. At the same time, low interest rates quickly translated rising incomes into booming farmland values, especially during the 1910s and 1970s when farmers used debt to finance their investments. These golden eras of a booming farm economy, however, quickly faded as economic and financial market conditions changed.
Today, U.S. agriculture is in the midst of another farm boom. Farm incomes are swelling due to record high exports and strong biofuels demand. Simultaneously, with historically low interest rates, farmland values have soared to record highs. While current conditions echo the rhythms of the past, farmers have hesitated to accumulate debt in financing new investments, raising the possibility that this time could be different.
This article explores the foundations of U.S. agriculture’s boom?-bust cycles. Similar to past farm cycles, robust export activity is fueling record high agricultural commodity prices, rising profits, and booming farmland prices. Despite this similarity, one subtle difference remains. To date, farmers appear to have limited the debt and leverage in their farm enterprises. Only time will tell if this is enough for agriculture to break free from the patterns of past boom-bust cycles. Section I compares and contrasts past fluctuations in farm exports, prices, and profits. Section II investigates the relationship between debt, leverage, and farmland values. Section III explores the factors that may shape agriculture’s future prosperity.