Economists Fear Farmland Bubble

March 19, 2013

Many owners of farm land are scrambling to sell to both investors and farmers who have benefitted from recent high crop prices. But analysts warn that the boom-and-bust cycle of farming cannot sustain this surge.

The New York Times reports that, despite the state's drought, Iowa farmland prices have nearly doubled since 2009, far surpassing the last boom’s peak in 1979. The price of irrigated land in Nebraska has similarly doubled since 2009.

However, with forecasters predicting the price of corn to fall, many predict that the price of farmland will fall with it.

“You can’t continue to see the price increases in land like we’ve been seeing. That’s just heading for trouble,” Michael Duffy, an economist in farm management at Iowa State University, tells the New York Times.

Compounding the problem is the high debt levels carried by many farmers. The Federal Deposit Insurance Corporation has been warning about this trend since at least 2011 when they held a symposium in Arlington, Va., for bankers, regulators, and investors titled “Don’t Bet the Farm: Assessing the Boom in U.S. Farmland Prices.” The New York Times reports that debt held by U.S. farmers has risen nearly 30 percent since 2007. They also report that regulators and critics say that figure is likely higher when adding in uncounted debt from specialized finance institutions, seed companies like Monsanto, and equipment manufacturers like John Deere.

Source: As Crop Prices Surge, Investment Firms and Farmers Vie for Land, New York Times (March 18, 2013)

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