Blogging by the Bushel
With numerous challenges over the past several years for producers, we at Mercer Landmark understand the need for a comprehensive risk management solution. We seek to provide our customers with unparalleled service to ensure maximum results.

Anna Kaverman

Mercer Landmark

It is no secret that farmland prices are on the rise at auctions and private sales across the Midwest, with buyers being lured by high commodity prices, low interest rates and the possibility of better returns than other investments.  In fact the Federal Reserve Bank of Chicago reported that the average value of “good” Illinois farmland rose 11 percent between January 2010 and 2011. One loan officer said prices in Central Illinois are up 25 percent since last fall. The value of agricultural land in the upper Midwest has doubled since 2002, according to data compiled by the Federal Reserve Bank of Chicago. 

To put it into perspective a little more just recently 30 bidders and a few dozen speculators all crowded into a community building in Illinois for an auction. Little did they know history would be made that night. On the block were two tracts of land near Sanford Illinois. One 36 acre tract was considered “prime” farmland.  By the time the last bid was called, the 36 acres sold for $420,000.  That’s a whopping $11,519 per acre! The $11,519 price was believed to be a record for McLean County and supposedly its smaller size and location drove up the price. The buyer declined to comment but was defined by the auction’s organizers as “a local investor.” One farmer was quoted as saying “That’s too rich for me,” as he settled for the larger but less valuable tract at a mere $6,364 an acre.

This rapid pace of growth has caught the eye of regulators, who are leery of potential bubbles in the wake of the housing crisis. According to Yale University economics professor Robert J. Shiller U.S. farmland may turn into “the next big speculative bubble” as prices climb. As a result the Federal Deposit Insurance Corp (FDIC) recently hosted a symposium noting the farm sector’s vulnerability to a severe correction or a rise in interest rates. With all this being said there are still some who are skeptical of the bubble. Gary Schnitkey, an agriculture economics professor at the University of Illinois, said he would get concerned if interest rates began to rise or “something very unusual” happened, like a trade war that pinched off imports and exports.

Like in Ohio and Indiana many of the buyer’s in Central Illinois are farmers themselves and are reaping the benefits of higher commodity prices. They have extra cash from marketing crops at high price.  It is not just farmers though.  There are a few investors in the mix too. The concern for regulators is that farmers could be taking on too much debt as they gobble up more and more expensive land. With all this being said we cannot forget that each farmer’s situation and operation is unique.  Buying ground can be a risk, but most of the farmers are not leveraging themselves to the hilt to buy it in the first place.  So even though the possibility of a farmland bubble exists, bubbles are social epidemics and forecasting any kind of bubble is difficult at best.

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