Farmland Bubble

Reader comment on: Sheila Bair on Farmland Bubble, Interest Rate Risk

Submitted by J.Johnson (United States), Oct 18, 2010 19:29

Having owned several farms in past years, and owning one right now, I think I can speak with some knowledge about bubbles in farmland prices. If Shelia Bair wants to look for one of the primary causes of bubbles in farmland prices, she need look no further than Congress and its policies and the policies of its agencies, such as those who supply credit for farmland purchases. In particular, the ethanol boondoggle and several recent pieces of Congressional legislation aimed at farmers have thrown tens of billions of dollars into the farm economy and kept farmland prices much higher than they would be if such handouts were curtailed. Additionally, the federal agency credit standards applied to farmers wanting to expand their land holdings are laughable in their laxity and the federal agencies who dispense farm loans exist now primarily because the agricultural lending standards of the vast majority of rural commercial banks are too stringent to permit most farmers to accumulate all the land they want. In the 1980's, the FCB would loan a quarter of a million dollars to any farmer who could fog a mirror. The end result of that lunacy was the crash in farmland prices in that decade that mirrors the debacle of the recent crash in house prices.

Although rarely mentioned, one of the drivers behind the continuation, indeed the expansion, of the ethanol travesty and other unwarranted subsidies is the fact that, after the farmland price crash of the 1980's, farmland prices fell to the point where buying farmland became a way to diversify the investment portfolios of many types of investors and investment entities and they now benefit from the billions of dollars thrown at agriculture. Voting against a big farm bill in Congress is now a sure ticket to unemployment for most Congressmen and Senators, not to mention for a President from a big farm state like Illinois.

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