Land Values Must Stabilize To Avoid Reaching Bubble Status

Land specialist Bruce Huber says the past two years' value increases are unsustainable.

Published on: Oct 3, 2011

According to the Illinois Society of Professional Farm Managers and Rural Appraisers, excellent quality farmland (over 190 bu. avg. corn yield) is now averaging $10,000 an acre.

It's a staggering figure. One that has a question bouncing around in the back of most landowner's minds: "Is this a bubble that's about to burst?" According to Schroeder/Huber Ag Services' Bruce Huber, no, but it's a good question.

"If you just look at the charts, it's hard to argue that there's not a bubble coming," Huber notes. "Looking back, land values have taken off like a rocket ship. It looks unsustainable."

Land specialist Murray Wise notes the land market has followed very closely with gold throughout the years, especially with the recent recession. Only difference is, farmland has an income stream, which makes it that much more attractive to investors.
Land specialist Murray Wise notes the land market has followed very closely with gold throughout the years, especially with the recent recession. Only difference is, farmland has an income stream, which makes it that much more attractive to investors.

In 2009, he says land values increased by about 15%. Last year, they jumped another 20%. Huber says we've reached the point where the market can no longer sustain these types of price increases.

Still, high commodity prices could continue to fuel the price boom. He remembers selling ground in the $10,000 range when corn was still $5 a bushel. However, Huber says this is only part of the story. Low interest rates are the other component that's making it possible to pay these prices, Huber explains.

Many Illinois farmers are facing dismal yields this year. Huber says the folks who average at least 150 bushels an acre will be just fine with high corn prices. On the other hand, 100 bushels will be tough to pay the bills with, he adds.

Speaking of paying the bills, Huber says cash rent for excellent quality land to be solidly in the mid-$400 range. In fact, he expects some will pay more than $500/acre next year in cash rent. Overall, he anticipates land values and rent prices will stay somewhat steady with slight upward pressure through 2012.