Monday, February 27, 2012

Farmland price boom sparks worries of a bust

Farmland has been rapidly selling at premium prices, and though some have feared a farmland price bust similar to the housing industry bust of the past decade, high prices of corn, wheat and other crops, low interest rates, investors seeking higher returns and predictions about demand for food in Asia and elsewhere keeps buyers from borrowing more than in the 1970s and '80s when there was a "massive exodus of bankrupt farmers," reports Chuck Raasch of USA Today.

Wealthy investors say they've "lost faith" in the stock market and are instead putting money into farmland. While the market struggles to recover, average farmland price increased by 31 percent from 2006 to 2011, more than $3,000 an acre, according to the U.S. Department of Agriculture. In some places from Ohio to Iowa, the Eatsern Corn Belt, prices doubled to $10,000 or more an acre. As a result,  USDA predicts net farm income this year to be the second-highest ever, at $91.7 billion. Farm economists say most buyers are life-long farmers who want to expand production, not get rich buying and selling land.

Some experts are urging caution. Federal Deposit Insurance Corporation Chair Sheila Bair said during an FDIC conference last year that the farmland boom "should not dissuade us ... from asking hard questions and articulating our concerns before a crisis is upon us." Land-auction veteran R.D. Schrader said talking about a bust might help prevent one. "Right now, the moon and the stars are lining up in favor of farmland values. Odds are that will change in the future. When that correction comes, it is tough to say." (Read more)

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