If, instead of heading for Las Vegas, a high-roller in 1980 bought a typical acre of U.S. farmland for $750 in hopes of turning a fast buck, the profit would hardly have been the stuff of a gambler's dreams. The speculator could have sold the one acre in 1982 for a record $823. That would have been a profit of less than 5 percent a year. But it would have been a profit. And there are more losers than winners at roulette tables. After the U.S. farmland boom of the 1970s peaked in 1982, however, it was downhill for years, with the bottom in 1987 at an average of $599 per acre. By 1990, according to the Agriculture Department, farm real estate prices nationally - including buildings as well as land - had recovered to around $693 per acre. These are only averages. No doubt there have been some speculative land deals that have resulted in somebody getting rich. But did speculators help run up farmland prices in the 1970s so much that the bottom was bound to fall out of the market in the 1980s? A USDA analysis says it is doubtful that speculation and easy credit policies led to the farmland bust. There is little doubt, however, that the slide in land prices was a huge factor in the financial crunch that gripped the nation's agriculture in the mid-1980s. Land is the main asset of farmers, and when values crumbled their collateral shrank, and so did their borrowing power. ``Many market observers said (farmland) prices reflected a speculative mania rather than expected farm income,'' the report said. ``Speculative manias, often called bubbles, occur when investors buy an asset intending only to sell it later at a higher price, rather than using it to generate income over a number of years.'' The report was written by Fred Kuchler and Abebayehu Tegene of the department's Economic Research Service and is in the November issue of Agricultural Outlook magazine. ``While there is some circumstantial evidence of a speculative bubble in the 1970s, the long-run stable relation between farmland prices and returns (as measured by cash rental rates) leads to the conclusion that bubbles have most likely not occurred in farmland markets,'' the report said. ``Rather,'' it added, ``expectations about future farm incomes and other economic factors have determined, and continue to determine, farmland prices.'' The report also said that many analysts believe ``aggressive lending policies touched off a speculative bubble in farmland prices'' during the 1970s. ``That conclusion appears to be incorrect, but the evidence does not rule out the possibility that aggressive lending, reflected in lower mortgage rates or greater volumes of credit, could have caused investors to re-evaluate their expectations,'' the report said. ``The lenders probably made farmland a much better investment.'' Recently the American Bankers Association released an independent study that said a liberalization of Farm Credit System lending policies nearly 20 years ago led to the boom-and-bust era in agriculture. According to the study, the cooperatively owned Farm Credit System - which includes federal land bank associations - was authorized by Congress in 1971 to raise its collateral limit for farm real estate loans. That meant larger loans to buy land. The bankers' study said the liberalization ``unleased a boom in land prices in rural America that saw the inflation-adjusted value of farmland nearly double from 1971 to 1980.'' But the bankers' study said the boom was unsustainable and that by the mid-1980s the average real value of farmland, after allowing for inflation, was almost down to its 1971 level. The USDA reports it is impossible to prove conclusively that speculative bubbles exist or do not exist. One reason is that economists do not agree exactly on how much income should be attributed to land. ``If there was no speculative bubble, the runup in farmland prices during the 1970s must reflect big shifts in expectations,'' the report said. ``Farmland investors might have believed that farm income would rise at a faster pace or that income would continue to rise at the rate of the 1950s and 1960s.''
