In financial terms the answer to the question "What is farmland worth?" is "The income it can produce".
From the New York Times:
In Price of Farmland, Echoes of Another Boom
The 80 acres of rich farmland that Jeff Freking and his brother Randy bought near Le Mars, Iowa, on Monday for $10,000 an acre would seem to have nothing in common with a condo in Miami or a house in Las Vegas.The stock of Federal Agricultural Mortgage Corp. is one indicator to watch.
But as prices for agricultural land surge across America’s grain belt, regulators are warning that a new real estate bubble may be forming — echoing the frothy boom in home prices that saw values in Miami and Las Vegas skyrocket and then plummet.
“It just seems to be going up in leaps and bounds here,” said Jeff Freking, who bought a similar farm, also in northwestern Iowa, for $6,000 an acre just two years ago. “Everybody thinks it’s crazy.”
The surge in prices has been dizzying throughout the Midwest, with double-digit percentage increases last year in Illinois, Indiana, Iowa, Kansas, Minnesota and Nebraska. In parts of Iowa, prices for good farmland rose as much as 23 percent last year, according to the Federal Reserve Bank of Chicago.
Just a few years ago, farmers marveled as land prices began to rise in response to demand for corn to make ethanol. More recently, soaring prices for wheat, corn, soybeans and other crops have driven the increase. Corn futures on the Chicago Board of Trade closed at $7.27 a bushel on Tuesday, up from $3.70 a year earlier. Soybean futures were $13.67, up from $9.52 cents on March 1 last year. Average grain prices, adjusted for inflation, are nearing the giddy levels they reached in the late 1970s, the peak of the last disastrous boom-and-bust cycle for agricultural land.
That has regulators worried.
“History has taught us that it is nearly impossible to determine how much of the farmland boom may be an unsustainable bubble driven by financial markets,” said Thomas M. Hoenig, president of the Federal Reserve Bank of Kansas City, in testimony before the Senate Agriculture Committee last month.
Officials at Mr. Hoenig’s bank warn that farmers face a “huge” risk that rising interest rates, perhaps combined with falling crop prices, could undercut land values. Farmland values could drop by a third to a half in such a situation, Mr. Hoeing testified.
Prices have risen so far so fast that “it’s getting scary,” said Mike Green, a real estate auctioneer. He brought the hammer down last Friday on a 118-acre farm in Yetter, Iowa, that sold for $11,000 an acre, which he said was a record for farmland in Calhoun County, in western Iowa. In December, Mr. Green said, he got oohs and ahs when a parcel went for $9,300 an acre. Last fall, similar farms were selling for less than $8,000 an acre.
“It’s very hard to guess what a property will sell for these days because it seems like it’s been changing on a weekly basis,” he said.
Nationwide data from the United States Department of Agriculture shows that inflation-adjusted farm prices passed their 1970s peak several years ago, but that includes land, especially on the coasts, whose price rose when it was sold for development. University and Federal Reserve Bank surveys, which give a more accurate picture of the value of land used for farming, show that current prices are approaching the top of the last boom when adjusted for inflation....MORE
Farmer Mac got hammered in 2008, along with all the other financials. Take a look at this chart, you don't often see a company surviving this kind of waterfall collapse. Between August 11/12 when it hit $32.25 on both days and its September 26 intraday low of $2.28 the stock pulled off a 45 day 93% decline: