Farmland continues to move higher

With corn prices moving to new highs and soybeans staying in their high range this year,we can expect the continued march higher of farmland prices. Many key farmland areas are seeing double digit gains especially in the corn belt.

This has all of the makings of bubble given the combination of high crop prices and cheap money. With real short-term rates negative, it is not surprising that any real estate investor is wiling to borrow to acquire this land. This is real estate market is very different form the housing market. The use of the land is cash flow positive, but a decline in crop prices or an increase in interest rates will have the expected effect on land borrowers. There will be a fall out. We have seen this before in the agricultural markets which see significant mean reversion of prices.