Countdown to end of farmland price bubble
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.
“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.
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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