"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Tuesday, November 15, 2011

Farm Land - the Latest Bubble

In private conservations with various friends I have been discussing the very real possibility of a bubble-like price increase in farm land across this nation. There are several reasons but suffice it to say that soaring grain prices have led not only farmers, but investors to hit the trail looking high and low for tracts of good farmland that they can scoop up.

Farmers acquiring top quality farm land to increase their production is a normal response to higher food prices as supply will need to increase in order to keep up with the growing global demand for food. I do however have serious misgivings when I see hedge funds, and other assorted characters seeking to capitalize on this situation by setting up vehicles designed with the sole purpose of acquiring farmland for speculative reasons. This smacks of a mania to me and today that was pretty much confirmed by a report out of a conference held in Chicago which was hosted by the Federal Reserve Bank of Chicago.

The Chicago branch of the Fed, and the Kansas City branch, both reported that farmland values increased 25% from the previous year (according to a report by Dow Jones). This was the largest increase since 1977.

I have always been a fan of the American farmer and am pleased to see these hard working folks reap some of the benefits of increasing global demand for their product as well as seeing their land rise in value, but I am very worried that this could easily turn farmers against wild-eyed speculators who are chasing land, not directly for its productive capacity and value, but rather for an investment which they can later flip to another speculator. We have all seen what these fools did to the real estate market after packaging those mortgages into so many combinations of letters of the alphabet securities (CDO's, SIV's, etc.) that one could hardly keep up with them all. What happens if we see a repeat of that folly?

Obviously, some speculative buyers of farmland will lease the land out to farmers for agricultural use but the notion of hedge fund money sloshing into and out of farmland makes me extremely uneasy. What might happen if enough of these speculative buyers amassed significant holdings of quality farm only to see a drop in value at some point down the road? Would we witness the first domino falling and setting off another chain reaction like we saw in 2008 or any other bubble that has come and gone?

Maybe - Maybe not - all I know is that the combination of hedge funds/investors and farm land does not sit well with me.


  1. Thanks Dan! I believe what you have said is true. I live in rural Iowa and there are a few instances of farmers and other individuals paying close to $10,000 an acre. The sick part about the whole deal is that the land isn't top quality!

  2. jim grant was talking about this the other day:

    Also jim rogers is saying farm land is the way to go. I personal have no clue whats going on with farm land just interesting you commented on it.

  3. the hedgefunds will eat everything until there's nothing left to eat but themselves..

  4. i blame this on inflation. farmland is a great hedge. funny how the FED can be found at the bottom of most trouble.

  5. Hi Dan
    The below is from Wikipedia
    http://en.wikipedia.org/wiki/Agricultural_subsidyThe United States currently pays around $20 billion per year to farmers in direct subsidies as "farm income stabilization"[9][10][11] via U.S. farm bills. These bills date back to the economic turmoil of the Great Depression with 1922 Grain Futures Act, the 1929 Agricultural Marketing Act and the 1933 Agricultural Adjustment Act creating a tradition of government support. A Canadian report claimed that for every dollar U.S. farmers earn, 62 cents comes from some form of government, with total aid in 2009 from all levels of government adding up to $180.8 billion.[12][13]

    I too am a fan of the farmer but it seems the US farmer with subsidies and restrictions on our imports from around the world to the US is part of the problem. There is no way in hell any farmer anywhere in the world should be subsidised. The US in particular is one of the most coddled and protected farmer on the planet. $180b might go part way to getting the US out of its issues but it won't help the corpratocracy or politicians to get voted in so it won't happen.

  6. Dan,
    We saw similarities in farm land appreciation of 21% during the period of 1919-1920 and 25% between 1973- 1974; both ending in precipitous depreciations. We also know what followed in the state of the economies shortly there after. But then again, what Hedge Fund manger wouldn't want to be a 'windshield' cowboy and his own 'leisure' farm.
    Keep up the good work,


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