Former Kansas City Federal Reserve President Tom Hoenig and FDIC Chief Sheila Bair first raised official alarms about farmland bubbles back in 2010. It may sound like ancient history, but that's when excellent Illinois farmland was selling for a modest $7,000 instead of $13,000/acre, as it is today. In the last three years, Illinois's best soils have galloped 65%, according to the state's latest Illinois Society of Professional Farm Managers and Rural Appraisers report.
Now slightly more than half of DTN readers think we're headed for a Corn Belt apocalypse similar to the 2008 housing bubble.
In a DTN online poll of 432 subscribers last week, 50% of respondents said they think Corn Belt farmland is forming a bubble and risks crashing, 39% believe farmland is forming a bubble but will have a soft landing and 9% believe farmland values aren't close to a top yet and will continue to rally.
These polls aren't exactly scientific, since we don't know who is responding and we don't have a large pool of responses per state. But they do seem to mirror attitudes at record setting real estate auctions earlier this year.
Not surprisingly, where you live influences your vote. While nine out of 10 Iowans responding to the survey believe the bubble theory, 56% of them predict a soft landing. Some 47% of Kansans, 42% of Kentuckians and 41% of Illinois and Indiana residents also predict a safer return to earth when markets adjust.
But in the same time frame, cash rents have upped the ante, too.
In 2007, renters in the middle third of the pay range wrote checks for $183/acre for excellent quality Illinois farmland. By 2013, they were averaging $396. That's an extra $213/acre overhead charge renters carry today. It could be a heavy load should grain markets slide back to earth, too.
Subscriber Rob Barrett, president of Heritage State Bank in Nevada, Mo., worries less about what happens to landowners than renters.Although circumstances are slightly different today than in the 1980s, many of the challenges still exist, he said in an e-mail. "Ag is so capital intensive, our producers need to cover a lot of land to make things work. Many have the interest factor mitigated, but rate risk is still a major concern as it will also be a reflection of the dollar’s strength which would adversely impact commodities exported and inputs imported. With that being said, I guess my bigger fear is not real estate prices crashing or even lowering as much as budgets continuing to work if expenses rise (rents as well as inputs) and grain prices lower to more historic averages."
Do you agree the problem is a cash rent bubble, not a land bubble? Is it too risky to commit to a long-term cash rent lease today?
See the Illinois land data at http://www.ispfmra.org/…
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