This time it’s different.
Where have I heard that one before? Oh, right, that was the phrase uttered repeatedly throughout the buildup of the housing bubble.
But that old, familiar phrase, or words to that effect, is now on the lips of some who are watching the price of farmland. That’s because, while America’s homeowners, bankers and basically the worldwide economy have been collectively trying to recover from our housing bubble, farmland has been on a tear.
The value of an average acre of farmland nationwide has climbed 58 percent in the past decade, according to the U.S. Department of Agriculture. Numerous states are seeing double-digit price growth annually.
How does that compare to the value of your house, right about now? Yeah, I thought so. If you wanted to peg the source of the farmland price climb to a single word, that might be “corn,” which is also riding a wave of demand.
But there are other fuels in this fire, most notably Wall Street money, according to agriculture news reports throughout the Midwest. They have said that pension funds, foundations, endowments and other big-money sources have turned to farmland as a spot to park their cash.
Some federal officials are starting to clear their throats over the prospect of the B-word. Most visibly, the Federal Deposit Insurance Corp. in October officially urged the agricultural banks it supervises to be cautious about the potential damage that could be done by a sharp downturn in agricultural commodity prices.
Assess credit risk based on the borrowers’ cash flow and ability to repay loans, not just the value of the collateral itself, the FDIC said. And be wary of the effect of speculators driving up prices, it said.
Does this sound familiar?
It sure does to someone who clearly remembers housing analysts less than a decade ago proclaiming residential and commercial real estate to be the lucky beneficiary of Wall Street investors who had been burned in the tech meltdown and were seeking shelter in a “tangible” asset they deemed to be safer.
The Wichita Eagle newspaper in Kansas (where cropland has spiked 12 percent in the past year) recalled the period in the 1970s and 1980s when Midwest farmers suffered horribly from crop-price downturns. But today, the newspaper’s sources said, things are … different.
The Eagle quoted a major agricultural lender that said a farmland bubble is unlikely because today’s farmers are carrying lower debt levels than in those bad old days. Plus, they’re more sophisticated about debt, in general. Further, he said, interest rates are lower, and farmers’ debt would consume less of their income.
Seconding that motion was Charles Evans, president of the Federal Reserve Bank of Chicago, who said on a visit to Des Moines in December that he saw few indications of a farmland bubble, because the price increases were rooted in fundamentals, according to the Des Moines Register.
Neither farmer nor economist, who am I to argue with them? Still, my memory is not so impaired these days that I’ve forgotten those moments when reporters were practically shouted down by the stalwarts of the housing industry when we inquired as to whether the price euphoria could possibly be sustained.
