Farmland price worries overblown

In the past 12 months we have all heard and read a great deal about the increase in farmland prices. The question most asked by the press, and increasingly the banking regulators is, “Are we looking at another bubble?” In March the FDIC held a symposium on this issue. In early December 2010 the FDIC issued guidance (the Office of the Comptroller of the Currency issued similar guidance to all western banks) to all FDIC insured banks warning them about the dangers of asset bubbles and also warning agricultural banks--those banks with a concentration in agricultural lending--to consider the dangers of credit concentration. We appreciate the guidance of the regulatory community. Only one banker was invited to share his views at the FDIC Symposium. While it is clear in many areas of the country--including most of Iowa and the corn belt--farmland prices have escalated, there is no evidence that this is being fueled by credit. Farmers are responding to market signals, and those signals are extremely positive. Farmers and ranchers have accumulated cash, thanks to a healthy agricultural economy, and they have a positive outlook. As a result of these factors, what land that has gone on the market (in my area, very few parcels have come up for sale) has generated intense interest, and as a result, prices have risen. At the same time, demand for credit to finance these new land acquisitions has been relatively flat. Recent surveys of bankers conducted by Federal Reserve District banks support my point. In these surveys, the overwhelming majority of bankers reported that farm and ranch loan demand has been essentially flat. In addition, bank farm real estate loans outstanding according to the June 30, 2011, Call Reports filed with the FDIC indicate that there has been no increase in real estate lending. All of this data strengthens my belief that the increase in farmland sales values that we have seen over the past few years has largely been the result of farmer prosperity, not excessive lending...more