Thursday, December 13, 2012

Farmland price bubble feared

Iowa Senator Tom Harkin said he’s concerned that farmland prices in the state are so high that “a possible land bubble (is) forming out there on this.”

He made the comment after a survey by Iowa State University found that selling prices have reached an average of close to $8,300 an acre, 24 per cent higher than last year.

“What I really worry about is that debt and leverage don’t get overextended,” Harkin says.

“We’ve seen that before, haven’t we? Remember the 70s, when all these grain prices went up, plant fence row to fence row and all that.

“ A bubble happened and a lot of people got wiped out because they were way over-leveraged, too much debt when the 80s hit.”

Many Ontario farmers are also shaking their heads at current rumours about land prices and rents.

The coffee-shop gossip is that somebody is paying $500 an acre to rent land and that a buyer involved in a bidding auction paid $500,000 more than the second-highest bid for 150 acres in Huron County.

Retired economics professor George Brinkman has been warning for a few years now that Canadian farmers have piled up so much debt that their businesses are at high risk if interest rates rise or they face some farming stress, such as a drought or serious livestock disease.