The soaring pace of growth in US farmland prices may be setting the market up for a hard landing, a leading agricultural academic said, even as lenders forecast that values look set for further gains.
Ernie Goss, economist at Creighton University, forecasting a slowdown in US farm prosperity this year thanks to "somewhat softer agriculture commodity prices and higher input prices", warned over the risks falling crop values or higher lending costs pose to the land market.
"I am concerned that any significant slump in agriculture commodity prices or an increase in interest rates could take a lot of the air out of the farmland price bubble," Processor Goss said.
The warning was the latest in a series over price rises which have prompted concerns within the US Federal Reserve, the US central bank, and from Robert Shiller, the influential Yale Economist, who last year termed farmland his "dark-horse bubble candidate for the next decade".
However, Professor Goss conceded that he had "yet to detect any downturn in growth rates for farmland prices and other factors tied to agriculture", after a Creighton report showed land prices rising in 10 major US farming states, including Illinois, Iowa and Kansas, for a 25th successive month.
Indeed, the pace picked up slightly from last month, with an index rising to 75.0 to 74.3, if remaining below the 84.1 hit in December.
The briefing also revealed broad expectations of further increases in prices, with only 8% of bankers surveyed predicting farmland values would fall in 2012.
One Nebraska banker, Larry Rogers at First Bank of Utica in Nebraska, reported that "the most recent sale price for farmland was $12,000 per acre in three different sales".
US Department of Agriculture data from last summer pegs the average value of Nebraska farmland at $1,780 per acre.
Two central bank reports this week pegged farmland values rising at their fastest in decades last year, by 25% in the Kansas City district, including Kansas, Nebraska and Oklahoma states, and 22% in the Chicago district, which covers states including Illinois, Indiana and Iowa.
The Chicago report, released late on Thursday, said the rise in prices was the fastest since 1976, and also revealed expectations of further growth, with only 2% of lenders surveyed expecting a drop in values in the current quarter.
However, the bank acknowledged that 2011 may prove "a once-in-a-generation phenomenon", when farmland prices were supported by "an unusual shift in agricultural prices across the board".
"Not only did major crop prices move higher, but key livestock and dairy prices were higher as well."
Farmland prices had risen by a relatively slow 4% over the last three months of 2011, "cooling some from a blistering pace" in the autumn.
In 1976, which remains the modern high for land price rises, Midwest values increased by nearly 30%, the last of four successive years in which prices rose by more than 20%.
However, prices tumbled in the early 1980s, as interest rates rose and crop prices fell, by nearly one-half in corn's case in two years to a bottom in autumn 1982.