Are US Farmlands the Next Bubble?

From Bloomberg’s Chart of the Day

U.S. farmland may turn into “the next big speculative bubble” as prices climb, according to Robert J. Shiller, a Yale University economics professor.

The CHART OF THE DAY shows that the value of agricultural land in the upper Midwest has doubled since 2002, according to data compiled by the Federal Reserve Bank of Chicago. The chart also depicts farm values in inflation-adjusted terms, which are approaching their highs from the 1970s. The region encompasses Illinois, Indiana, Iowa, Michigan and Wisconsin.

Shiller, whose book “Irrational Exuberance” foreshadowed the end of the 1990s surge in stocks, wrote yesterday that farms are “my favorite dark-horse bubble candidate for the next decade or so.”…

“Farmland, as least in certain places, seems to have the most contagious ‘new era’ story right now,” Shiller wrote. He cited the risk of food shortages related to global warming as contributing to a boom in the U.K., along with the U.S.

The price trends of farmlands (not only in the US) will almost entirely depend on the actions of the commodity spectrum. If the US and other governments continue to massively inflate, then commodities will respond accordingly. Farmlands will subsequently respond too.

It would signify as utter nonsense to say that everything that goes up represents a ‘speculative bubble’. This assumes that current conditions are hunky dory except for the ‘irrational exuberance’ by the marketplace.

Yet one would realize that it isn’t just farmlands but also the technology sector showing semblance of ‘bubble’ actions. The point being—you won’t have symptoms of bubbles (in the US and elsewhere) without fuel to inflate them.

And $6.4 trillion question is who’s been providing that?

Besides, hasn’t it been the morbid fear of falling prices that has led to the corresponding policies designed to boost prices higher?

Essentially surging farmlands (and commodities) represents the proverbial “be careful of what you wish for” pathology.

Irrational exuberance represents the secondary cause and not the main mover.