Countdown to end of farmland price bubble

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A drop in corn prices may be good news for livestock producers, but it could mean bad news for farmland prices, according to a Bloomberg report.  

Bubble “I can see the fear in farmers’ eyes when they think of all the moving pieces around the world gutting the value of next year’s crop,” said David Kohl, agricultural economist and president of consulting firm AgriVisions, who last week spoke at several farming conferences in northern Nebraska. “Most of them know the boom in corn prices and farmland prices is coming to a screeching halt.”

Farmland prices have soared by an average of 72 percent over the last three years, but experts warn that the value of the $2.5 trillion of U.S. farmland could plummet by as much as 30 percent within the next three years as the corn rush ends.

“The increase in land prices was caused by the increase in corn prices,” Gary Ash, chief executive officer for 1st Farm Credit Services in Normal, Ill., told Bloomberg. “The reverse is going to be true. The drop in corn is going to result in a drop in land value.”

Such a drop ignites fears of the last time an agricultural land-price bubble burst in the 1980s when prices fell 27 percent within four years after a peak in 1982. Some areas in the Midwest saw prices drop by more than 50 percent.

Read, “Corn Plummeting Spurs Talk of ’80s U.S. Farmland Bust: Mortgages.”

Not everyone is convinced farmers should expect a hard landing when the farmland price bubble finally bursts. Terry Kastens, agricultural economist emeritus at Kansas State University, explained in an article here that while prices may tumble, they will not necessarily crash.

Still, according to Reuters, bankers warn farmers that 2014 may be the year to “sober up” from the farmland boom that has lasted for more than six years.

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michael    
kansas  |  December, 18, 2013 at 11:06 AM

It would be good to see PorkNet doing follow-up interviews with all the people you've given space and time to in the past couple of years, telling us that there was no "bubble", and that everyone should buy! buy! buy! because it can only get better! And, that because most farmer buyers were using their windfall cash from high-priced commodities, it wouldn't matter anyway. Just as with 401k investors, when farmers (and misled outsiders) see their cash purchases Devalued by 50-70% as they head towards retirement and estate planning I think they'll disagree. Unfettered boosterism given unlimited and unchallenged "ink" by the media is a terrible disservice.

Mark    
IL  |  December, 18, 2013 at 11:19 AM

Already heard a young farmer 28 yrs old complaining about his $11,800 an acre ground. Said he can't hardly come up with the payments. I started out in the early 80's I know what's to come. With his lifestyle he going to tighten his belt a little more if he's going to keep the ground. I'm looking for a Fire sale ! This time, I have the cash. Give it time ! Writing on the wall

Tionico    
Washington  |  December, 18, 2013 at 12:44 PM

The formula is simple: government boosts price of corn for "biofool", folks who never farmed want to make easy money, buy land, force prices up. Government pays high prices for corn (subsidised to "promote' a bad idea), props up the biofool business, price of ALL fuel goes up, land prices rise.... no EPA have cut back a touch on mandated biofool production, and cattle production is lowered (high prices?) the profit isn't there much any more... so the city folk investors will be wanting out. I think its a good thing... get land prices back down to somewhere reasonable again. Sure, there' s been a bubble growing.... and every bubble WILL pop, it only a matter of time. Land bargains in the next three years? I hope I'm ready when they're here.


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