Is a Bubble Forming With Farmland Prices?

We’ve been highlighting the opportunity in farmland for the past 3+ years.  I’ve called it the best ‘long term’ investment I can see.  That said, the move in the past few years, and especially this year has been astounding and feeling ‘bubble-licious’.  In Nebraska, farmland has risen 40% year over year according to the latest data… in Iowa 31% – that doesn’t make much sense, aside from the fact so much easy money has been created and it’s starved for a home. The Midwest region as a whole is up 25% year over year, which is actually an acceleration over levels seen last we heard in May.  Like all good Fed induced bubbles, this one will end badly – let’s look for the typical signs…. in this case a Ferrari dealership opening in Omaha should be a good one.

Via AP:

  • The average value of farmland in several Midwest and Western states soared 25 percent over last year in the third quarter.
  • Nebraska farmland values increased the most with a roughly 40 percent jump over 2010.
  • The Federal Reserve Bank of Kansas City, Mo., said Tuesday that bumper crops and strong farm income in northern Plains states, like Nebraska, helped the region overcome drought and flooding.
  • The Federal Reserve says this new survey of 243 banks showed the largest annual increase in land values since the survey started in 1994.
  • The 10th Federal Reserve District covers Kansas, Nebraska, Oklahoma, Wyoming, Colorado, northern New Mexico and western Missouri.

Full survey here.

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And it’s not just the Kansas City Fed district – even the Chicago district has seen its best appreciation since 1977.

  • According to the Chicago Fed, farmland values in its district had their largest increase since 1977, jumping 7% from the previous quarter.  Iowa farmland prices led the Chicago Fed’s district, jumping 31% from last year’s 3rd quarter.

Companies to Watch: The Mosaic Company (NYSE:MOS), Potash Corp./Saskatchewan (NYSE:POT), Agrium Inc. (NYSE:AGU), CF Industries Hldgs., Inc. (NYSE:CF), Intrepid Potash, Inc. (NYSE:IPI), AgFeed Industries (NASDAQ:FEED), Converted Organics Inc. (NASDAQ:COIN), and Monsanto Company (NYSE:MON).

Trader Mark is the author of Fund My Mutual Fund.

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