Kansas City Fed president sees no threat yet of a farmland bubble

decrease font size  Resize text   increase font size       Printer-friendly version of this article Printer-friendly version of this article


Soaring U.S. farmland prices remain a cause of concern for many bankers and policymakers, but the forces driving gains nowadays are different from the debt-driven farmland crash in the 1980s, Kansas City Federal Reserve president Esther George said on Tuesday.

George, who flagged concerns about a potential farmland "bubble" in remarks earlier this year, has argued consistently for higher interest rates and an end of the Fed's easy money policies. But in remarks to a gathering of bankers and business leaders at a conference here, she expressed confidence that both farmers and banks had learned and remember the hard lessons of being "over-leveraged" in the 1970s. When the Fed raised interest rates sharply in the 1980s to subdue inflation, thousands of farmers were pushed into bankruptcy as land values popped and collateral for their bank loans collapsed.

"One of the things I've talked about are ag land values and the really extraordinary levels of which we see sales continuing to occur in markets in this region," George said. "Certainly we know that global demand for the commodities has driven the values there. We also know that looking for return can be a contributor to some of that value as well."

The Kansas City district, which stretches from Missouri and Kansas to Nebraska and Oklahoma, is home to thousands of farmers and is a leading producer of wheat, corn and cattle, among other farm commodities. The value of farmland has soared to all-time highs in recent years, selling for $10,000 an acre more in the top growing regions of the district.

"Today's landscape and the amount of leverage that we saw in the '70s in the farm sector seems to be absent today. I trumped that up to some lessons learned," she said, referring to the 1980s farm crisis.

"You will find that some of our ag banks clearly remember some of the issues they faced with collateral-based lending. So in the banking industry we do not see the levels of leverage that characterized what we saw then."

While the conditions driving farmland prices higher differ from the 1980s, the KC Fed will continue to watch for any unusual rises in credit loads for large farm operations, given, for example, the rising share of lending to non-bank sectors such as equipment or seed suppliers.

"There's a lot of cash. We see more equity going into some of these deals," George said. "We have seen some very large consolidated operations that developed exposures, not just bank lending, but in some cases vendor financing."

Overall, given the pay downs of farmer debt - led by grain farmers the last five years as ethanol and exports fueled record prices - George said the chances of a repeat of the 1980s debt and farmland bubble were slim. But higher interest rates might affect demand and soften prices, so any "correction" in land prices as monetary policy strengthens could be expected to work its way through the farm economy, although in milder ways.

"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."


Buyers Guide

Doyle Equipment Manufacturing Co.
Doyle Equipment Manufacturing prides themselves as being “The King of the Rotary’s” with their Direct Drive Rotary Blend Systems. With numerous setup possibilities and sizes, ranging from a  more...
A.J. Sackett Sons & Company
Sackett Blend Towers feature the H.I.M, High Intensity Mixer, the next generation of blending and coating technology which supports Precision Fertilizer Blending®. Its unique design allows  more...
R&R Manufacturing Inc.
The R&R Minuteman Blend System is the original proven performer. Fast, precise blending with a compact foot print. Significantly lower horsepower requirement. Low inload height with large  more...
Junge Control Inc.
Junge Control Inc. creates state-of-the-art product blending and measuring solutions that allow you to totally maximize operating efficiency with amazing accuracy and repeatability, superior  more...
Yargus Manufacturing
The flagship blending system for the Layco product line is the fully automated Layco DW System™. The advanced technology of the Layco DW (Declining Weight) system results in a blending  more...
Yargus Manufacturing
The LAYCOTE™ Automated Coating System provides a new level of coating accuracy for a stand-alone coating system or for coating (impregnating) in an automated blending system. The unique  more...
John Deere
The DN345 Drawn Dry Spreader can carry more than 12 tons of fertilizer and 17.5 tons of lime. Designed to operate at field speeds up to 20 MPH with full loads and the G4 spreader uniformly  more...
Force Unlimited
The Pro-Force is a multi-purpose spreader with a wider apron and steeper sides. Our Pro-Force has the most aggressive 30” spinner on the market, and is capable of spreading higher rates of  more...
BBI Spreaders
MagnaSpread 2 & MagnaSpread 3 — With BBI’s patented multi-bin technology, these spreaders operate multiple hoppers guided by independent, variable-rate technology. These models are built on  more...


Comments (1) Leave a comment 

Name
e-Mail (required)
Location

Comment:

characters left

michael    
kansas  |  August, 20, 2013 at 05:22 PM

Why would anybody believe The Fed, or anyone representing them? Remind us all how many weeks AFTER the Housing Market Bubble Popped, the Fed "saw the threat"? (And don't forget about that S&L "surprise") And other Governmental bodies? Many were still denying the Housing Bust months after it was swallowing the U.S. Economy. Now if this gentleman was promised to lose his job, his personal fortune, be sued and/or jailed if his opinion is found wanting, I might be pursuaded. As it is, he has NO SKIN in THE GAME... just like other "experts" who are reassuring us that there's nothing to fear and land prices will just keep going up forever! INSANITY = Doing a thing over & expecting a different outcome


FarmRite

FarmRite allows service providers to process more acres and to produce cutting-edge information reports in less time and with less ... Read More

View all Products in this segment

View All Buyers Guides

Feedback Form
Feedback Form