Is farmland caught in a price bubble that's about to burst?
In 2013, the cost of an average acre of Iowa farm real estate jumped by 20 percent in value to $8,400.
It’s a story that is seen across America’s fertile heartland with farmland worth about 13 percent more than in 2012.
But is farmland caught in a price bubble that soon could burst?
John Taylor, national farm and ranch executive for U.S. Trust, a private bank that is part of Bank of America Corp, believes it’s too early to justify fears of a bubble, according to a report by MarketWatch by The Wall Street Journal.
“In general, if you ask, is farmland in a bubble, I’ll say, no,” he said. “But if you ask, are some people paying bubble prices, I’ll say, yes.”
Farmland has be climbing for the last decade thanks to a surge in farm income and commodity prices, but as these prices settle back down and interest levels start to move higher, some see the next few years as an important test.
“This is the moment of truth, I think,” said Brent Gloy, agricultural economics professor at Purdue University.
He added that 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. Read more here.
Earlier this summer, Esther George, President of the Kansas City Federal Reserve, argued against the threat of a farmland bubble. Instead, she is confidence in the lessons both farmers and bankers learned – and remember – from being “over-leveraged” in the 1970s.
"The run-up in the land values is likely to still create issues for those that are exposed in some way," she said. "Will we see it as broadly as we did in the '70s? Not the same scenario. But we will still see some fallout if there is a strong correction."