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Four indicators of the strength of regional agricultural economies are land prices, machinery investment, debt level, and debt-to-asset ratios. Land values grew rapidly from 1960, reached a peak in 1980 (1979 in Wyoming), and then rapidly declined. Currently, land prices are below 1960 levels in Idaho, Montana, and Wyoming and they approximate 1960 levels in North Dakota. Recently, land prices have been stagnant in all four states. However, smaller geographic regions within states have grown substantially.

Machinery investment, which indicates the degree of farmers' optimism or pessimism, increased in all states until 1977 and then declined through 1986. This 10-year decline averaged about 4.5 to 5 percent annually in Idaho, North Dakota and Wyoming, and implied that little replacement was occurring. Montana machinery investment declined 3 percent per year over the same period, indicating severely depressed machinery purchases. During the last four years, machinery replacement has been about equal to depreciation, so the level of machinery investment is being maintained.

Farm debt followed similar trends; it expanded from 1960 to 1980. By December 31, 1990, farm debt had declined by 42 to 51 percent from its peak in the four states. Such large declines in debt are unusual, particularly for a sector where a high proportion of inputs are durable. Debt-to-asset ratio is 18 percent in Idaho, 13 percent in Montana, 16 percent in North Dakota, and 12 percent in Wyoming.

Montana Agricultural Economy

Although the degree is much different, irrigated, dryland crop, and pasture lands in Montana followed the same general upswing and then downturn. Grazing land is at 36 percent of its peak value, dryland crop land at 50 percent, and irrigated land at 45 percent. Overall since 1950, grazing land has increased in value by 120 percent, dryland crop land by 72 percent, and irrigated land by 25 percent.

Agricultural lenders' market share has varied throughout the last 30 years (Figure 6). The Farm Credit System's share grew rapidly during the '60s, maintained about 30 percent of the market throughout the '70s and early '80s, and declined during the late '80s. Debt trends generally followed land prices, so when land prices declined, the Farm Credit System lost collateral value, which led to its well-publicized problems of the mid-'80s. Beginning in the early '70s, but particularly during the difficult early '80s, Farm Home Administration's market share rose rapidly - in fact tripling its share of Montana's farm debt between 1976 and 1986. Although individuals and others have financed a significant portion of Montana's farm debt, their market share declined precipitously during the '80s. By contrast, banks' market share has increased in recent years and approximately offsets the decline by individuals and others. Life insurance companies and the Commodity Credit Corporation are smaller but still significant lenders.

While volatile, Montana's agricultural cash receipts have shown no long-term upward or downward trend over the last 40 years. During the last 40 years, government payments - most of which are associated with cropping - have risen from less than 1 percent of total agricultural receipts to nearly 16 percent. Relative to total crop receipts, government payments reached a peak of 41 percent in 1986, and dropped to 29 percent in 1990.


Cattle, wheat, and barley generate over 80 percent of Montana's agricultural market cash receipts. Cattle prices will soften over the next few years as cattle numbers grow. Demand for beef likely will weaken a modest amount as the population continues to age (older people eat less beef than younger adults). Grain prices are heavily dependent upon international markets. Declining stocks and a weak dollar should influence grain prices positively. The upward movement in grain prices should more than offset softening livestock prices, resulting in a modest growth in cash receipts above the rate of inflation. A similar upward trend in land prices may be expected if the inflation-adjusted interest rate remains low.

Myles Watts is a professor of agricultural economics and economics at Montana State University, Bozeman, Montana.
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Title Annotation:Major Industries; The Montana Economy within a Regional Context
Author:Watts, Myles
Publication:Montana Business Quarterly
Date:Mar 22, 1992
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