Is it a Bubble or Not?!
Marketwatch.com is published by the Wall Street Journal and last week they had an article on “Spiking farmland prices offer a lesson on market bubbles“. From the title, you would naturally assume that they believe farmland prices were at the bubble stage and headed for a large fall. However, in reading the article, it appears that their viewpoint is that farmland prices have spiked based on data from the Federal Reserve System, but that land prices have corrected appropriately based upon reduced crop prices.
In an actual market bubble, land prices would continue to rise regardless of the underlying fundamentals. This is not the current case with farmland values. They have corrected and in some cases, the correction has been material (down more than 10%). However, the correction so far is based purely on the reduction in crop prices. If interest rates rise back to “normal values”, then we could easily see another 10-30% correction in farmland prices.
It is probably healthy that a discussion on whether farmland values are in a bubble is ongoing. In a normal bubble, the discussion would be how this time it is different and prices must keep going higher. I think we are long past that stage.
Paul Neiffer, CPA
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
Comments are closed.