Ag Economist Matt Erickson: Volatility Varies on the Farm

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Three decades offers more perspective than three years. Ten states provide more context than two. And volatility in one state’s agricultural priorities is not always the same as its bordering neighbor.

Those are some of the reasons why Matt Erickson, senior analyst at Terrain Ag, wanted to prioritize thoroughness in the new research publication, “How Midwest Cropland Earns Its Return.”  

Terrain Ag provides analysis in the agricultural economy. Erickson primarily focuses on grain, macroeconomics, and swine for the firm.

“Every day I work with Farm Credit customers that we serve," Erickson told American Farmland Owner from his office near Lafayette, Indiana. "Farmland is getting a lot of attention and rightfully so. It makes up about 80% or close to 80% of assets on the balance sheet."

Farmland data over the long-term

Rather than focusing on a handful of recent years, Erickson wanted to examine roughly three decades of USDA data across a 10-state region stretching through the Midwest and Plains. Looking over such a long period allowed him to smooth out short-term market swings and better understand how farmland creates wealth over time.

"I think what customers were looking for was just a simple report that looked at how farmland has performed over the past 30 to 35 years when we think about the ag cycles and the business cycles that we've gone through," Erickson explained.

Matt Erickson’s bio:

• Terrain Ag– Senior Research Analyst

• Family Farmer – Corn, soybeans, popcorn, and swine near Lafayette, Indiana

• Farm Credit Services of America – Former Ag Economic and Policy Advisor

• U.S. Senate Committee on Agriculture, Nutrition, and Forestry – Former Chief Economist

• American Farm Bureau Federation – Former Economist

• Purdue University – Former Research Assistant

Farmland income and appreciation

His research breaks farmland returns into two primary sources.

"The first is the cash income side, and the other side is the land appreciation side," Erickson said. "I wanted to take a look at those two return components. But we also have to include the volatility and the nature of volatility for that asset."

That final piece—volatility—is often overlooked.

Volatility of farmland

Farmers naturally focus on rental income, crop returns, and land values. But Erickson said understanding how much those values fluctuate can be just as important when making long-term decisions.

His research showed, however, that not every region creates that wealth the same way. When Erickson analyzed long-term returns, clear regional patterns emerged.

Eastern Corn Belt

"A lot of these Eastern Corn Belt states such as Illinois, Indiana, Ohio, as well as Iowa... really relied heavily on the appreciation side of things with regard to where they gained the most return," he said.

Much of the wealth generated in those states came from steadily rising land values.

Western Corn Belt

The Western Corn Belt tells a different story.

"Kansas and South Dakota, and even Nebraska, generated a lot of their total return on the income side," Erickson said.

That difference matters because income and appreciation don't carry the same level of risk.

"When we look at the Eastern Corn Belt, oftentimes the volatility is much, much less," Erickson explained. "I don't want to say a safer asset, but the volatility is much lower."

Meanwhile, western states can produce stronger income returns, but those returns often come with larger swings.

"You can gain a little bit more return when you adjust it for inflation on the income side, but the volatility is much wider with regard to the gains and even the losses that could be associated with it."

Why does that difference exist?

Farmland volatility

Erickson pointed to several factors.

"I think first we've got to think about policy in general," he said, noting the enormous impact ethanol expansion had beginning in the mid-2000s.

The rapid growth of ethanol plants strengthened corn demand throughout much of the eastern Corn Belt while consistent corn-soybean rotations also helped stabilize production.

"I think with regard to yield... there's some consistency," Erickson said.

Iowa occupies something of a middle ground.

"I think it's more fluctuated with regard to buyer optimism," he said. "It could really kind of swing a little bit too with regard to how the cycle generates."

Crop choices affect returns

Further west, changing crop mixes have also influenced returns.

"Some of those states may have been more wheat-based," Erickson explained.

But ethanol demand influenced changes. “They've become more standard corn and soybean states," he said.

Those evolving production systems, combined with changing buyer demand, have created larger price swings.

"I think we're just getting more buyer demand in those areas," Erickson said. "I think that helps the appreciation, as well as even the cash income side of this."

The lesson for farmland owners is simple: don't judge land strictly by today's prices or last year's cash rent.

Every region carries its own combination of income potential, appreciation, and volatility.

Understanding those differences helps producers make better purchase decisions, lenders better evaluate risk, and families better appreciate the remarkable asset they have spent generations building.

Because while commodity markets may rise and fall every season, farmland continues to remind us that agriculture has always been a long game. Those willing to think in decades instead of months often discover that patience remains one of the most valuable assets on the farm.