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Farmland bubble? Depends on your acreage

Do you think farmland values are in a bubble? If the results of a recent study are correct, your answer will depend a lot on how many acres of land you own.

In a survey of just shy of 250 farm landowners and investors in the Corn Belt, whose median land ownership was about 500 acres, almost half responding said they think the land market's in a bubble. But, when you break down that same group by the number of acres owned, the numbers change.

"Larger and more experienced owners were less concerned about a bubble," says Purdue University Center for Commercial Agriculture director and ag economist Brent Gloy. "The median acreage owned by those that felt the market was in a bubble was slightly less than half of those that felt the market was not in a bubble (320 as opposed to 740 acres)."

Those landowners surveyed in Gloy's study expressed wide-ranging opinions on land values. The average value was pegged at just over $6,100/acre with a range of around $4,200 to $8,200/acre. Land investors said the average cash rental rate they expect in the next year to be between $200 and $233/acre.

The wide ranges in both land value and rental rate projections falls short of pegging whether the market is, in fact, entirely in a bubble. "There was a great deal of variability among the estimates of the value of the farm and its cash rental rate. This indicates that the market is likely still searching for equilibrium prices after the dramatic crop price increases that have been experienced in the last decade," Gloy says. "This is complicated by a limited amount of farmland for sale. Nearly all of the respondents felt that the amount of farmland for sale was less than normal or about the same as usual."

That quantity of land on the market, Gloy adds, is the key variable to watch in terms of where the market moves in the near future. If it stays tight, as he expects, it leaves even more upside potential.

"Where farmland values ultimately go will depend upon a number of factors, but until the supply of land offered to the market increases, it is likely that those at the upper end the demand curve will continue to push prices higher," he says. "How long this lasts will ultimately depend upon how these individuals’ expectations evolve."



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