Tuesday, October 22, 2013

Rising real-estate prices, falling crop prices raise more fears of a farmland bubble in Corn Belt

Years of continually rising farmland prices have led some to fear a real-estate bubble is buiding, and now that some crop prices have dropped, those worries have increased, William Watts reports for The Wall Street Journal. In Iowa, farmland value has risen 20 percent in the past four years, from an average price of $3,850 an acre in 2009 to $8,400 in 2013. Similar gains have been reported across the rest of the Corn Belt and Northern Plains.

John Taylor, national farm and ranch executive for U.S. Trust, a private bank that is part of Bank of America, told Watts, “In general, if you ask, is farmland in a bubble, I’ll say, no. But if you ask, are some people paying bubble prices, I’ll say, yes.” Brent Gloy, an agricultural economics professor at Purdue University, said if prices continue to surge in the face of intensifying headwinds, it would then be a troubling sign that a bubble was building in farmland. He told Watts, “This is the moment of truth, I think." (Iowa State University graphic)

Low interest rates "have affected farmland prices in more ways than one, noted Jim Farrell, president and chief executive of Omaha-based Farmers National Co., a farm-management and land sales firm," Watts writes. "Low rates make it cheaper to finance land purchases, but they’ve also fueled a hunt for yield that’s helped boost demand for farmland. At the same time, worries that there will be nowhere to park the proceeds from a farm sale have helped limit the supply of farmland on the market, he noted." (Read more

No comments: