Despite the worst drought in a generation, farmland in the United States is a hot item.
Prices are on the rise in much of the American heartland, from Illinois to Kansas, as investors seek long-term investment vehicles that look safer than stocks and bonds.
While it certainly helps that interest rates are low, the fact is that agriculture land prices have been rising fast over the last decade, 2008 global recession excepted. Compare that to stocks — which have gained, no doubt, not not nearly as much — and suddenly corn looks much better than corporations.
An August survey by the Federal Reserve Bank of Chicago showed a 15 percent increase in farmland prices since last year across a region that covers Iowa, Illinois, Indiana, Wisconsin and Michigan. Another survey released at the same time from the Federal Reserve Bank of Kansas City showed even higher growth in the Great Plains states, where farmland prices have increased 26 percent since last year.
The two Fed surveys and sales data have raised concerns from bank regulators about a potential farmland bubble, similar to the housing frenzy that helped set off the financial crisis. A year ago, rising farmland prices prompted regulators to warn banks not to relax lending standards. In July, the Kansas City Fed held a symposium to discuss concerns about a bubble.
Prices are indeed soaring, up 32 percent since 2010, according to an agriculture land survey by Iowa State University. The hazard: that farmers will recreate the American housing crisis, where borrowers suddenly find themselves overleveraged. That’s if the banks — and federal government — let them.