Tags: midwest | cropland | farmland | bubble

Surging Midwest Farmland Prices May Be a Bubble

By    |   Friday, 16 Dec 2011 10:12 AM

Prices for cropland in the Midwest are soaring, rising in tandem with the prices of the corn, soybeans, and other commodities grown on them.

 

That is leading some to question whether the surge represents a bubble. "Land prices are too high. Things are getting out of whack," Michael Swanson, an economist at Wells Fargo, tells The Wall Street Journal.

 

Land prices have doubled over the past five years in agricultural states such as Nebraska and Indiana. That reflects a similar move by corn and soybean prices.

 

The commodity price increase stems largely from explosive demand from China and the corn-to-ethanol industry, which now consumes 40 percent of the U.S. corn crop.

 

Midwest farm prices are rising at their fastest clip since the 1970s, which was followed by a bust in the next decade, almost destroying many farmers and their bankers.

 

Midwest farmers historically have purchased an acre of land for the value of corn it can produce over four years, Swanson calculates. Now, an acre of land sells for six years of crop output, at the same time that crop prices stand far above historical norms.

 

Iowa State University economist Mike Duffy is one who doesn’t expect a crash.

 

“I see the agricultural economy remaining strong, and farm values will continue to rise, although perhaps not at [annual] rates of 32 percent,” he tells The Des Moines Register. “There may be some hiccups along the way."

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Prices for cropland in the Midwest are soaring, rising in tandem with the prices of the corn, soybeans, and other commodities grown on them. That is leading some to question whether the surge represents a bubble. Land prices are too high. Things are getting out of whack, ...
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2011-12-16
Friday, 16 Dec 2011 10:12 AM
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