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FDIC chair warns of possible farmland ‘bubble’

One of the nation’s chief banking regulators warns that U.S. farmland could be the next asset bubble at risk for bursting.

The chairman of the Federal Deposit Insurance Corporation (FDIC), Sheila Bair, says that farmland values should be closely monitored for signs of instability.  She says a sharp decline in farmland prices similar to the early 1980’s could have a severe adverse impact on the nation’s nearly 16-hundred farm banks.

The head of one of the nation’s largest farm management and real estate firms, Farmers National Company, says he understands those concerns.  But Jim Farrell says there is nothing on the immediate horizon to indicate a downturn in farmland values.

“I’m certainly not predicting that land values are going to go up for the next five years, because I really don’t know that that’s the case,” Farrell says. “I’m just looking forward, however, thinking that with the strong demand that we have in the developing countries that are using our products and have demand for our products—and the overall profit that’s being made in agriculture today with strong grain prices—that the whole industry looks very strong.”

Farrell says, for the most part, it is farmers who have been fueling the increases in land prices.

“Over 70 percent of what we’re selling is going to farmers—and so it’s not necessarily that investors are fueling this current uptick in land values,” Farrell says. “There are investors trying to buy land, but it is farmers buying land that continue to feed this market and keep this market strong.”

Farrell says most of the land being purchased today carries substantially less debt than was the case in the 1980’s.

AUDIO: Jim Farrell (6:45 mp3)

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