Tuesday, October 23, 2012

Our next financial bubble, farmland.


As long as the economy remains weak, people with money will be looking for a better investment than the traditional ones. One that is currently surging is farmland.
Across the nation’s Corn Belt, even as the worst drought in more than 50 years has destroyed what was expected to be a record corn crop and reduced yields to their lowest level in 17 years, farmland prices have continued to rise. From Nebraska to Illinois, farmers seeking more land to plant and outside investors looking for a better long-term investment than stocks and bonds continue to buy farmland, taking advantage of low interest rates.

And despite a few warnings from bankers, the farmland boom shows no signs of slowing. Almost every year since 2005, except during the start of the recession in 2008, agriculture land prices have posted double-digit gains. In the same period, the Standard & Poor’s 500-stock index has had double-digit gains in only three of those years.

An August survey by the Federal Reserve Bank of Chicago showed a 15 percent increase in farmland prices since last year across a region that covers Iowa, Illinois, Indiana, Wisconsin and Michigan. Another survey released at the same time from the Federal Reserve Bank of Kansas City showed even higher growth in the Great Plains states, where farmland prices have increased 26 percent since last year.

The two Fed surveys and sales data have raised concerns from bank regulators about a potential farmland bubble, similar to the housing frenzy that helped set off the financial crisis. A year ago, rising farmland prices prompted regulators to warn banks not to relax lending standards. In July, the Kansas City Fed held a symposium to discuss concerns about a bubble.
This has happened in the past but if the Fed can keep a tight leash on the banks, we may avoid another bust.

Comments:
A couple first hand observations that support this reality -

From '07
http://oakcreekforum.blogspot.com/2006/01/post-for-hcn.html

From '08
http://oakcreekforum.blogspot.com/2008/05/will-this-be-year.html


In this particular area of the cornfield the land is some of the very best in the world. Price per acre conservatively is now 10K an acre. It's probably closer to 12-14K actually. Some smaller sales have gone to 20.

A friend who leases his land and that price has double or more for leased farmland as well btw says if he went into town for lunch and mentioned to someone he was going to sell his quarter that by the time he got home he would not be able to get in the driveway for all the people wanting to buy it. Just about the way it is.

My point as yours. These guys get dollar signs rolling around their eyes like in the cartoons. They're going around real fast now. It's the smell of money once again.

Gone bust before and no way can these quick dramatic increases be sustained at this level without problems. The door is now open for it not to rain much again this year in the Cornbelt as well as the Rockies and snow totals. Both could very well be worse.

The drought talk is always about $'s lost. Don't rain or snow much again the dumb fuckers will be crying "what the fuck we gonna do now".

They still had a very good year in this area considering.
 

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