The rapid rise in farmland values has generated much talk of a potential “farmland bubble.”
One of the most recent warnings came from Yale University economics professor Robert Shiller, whose book “Irrational Exuberance” foreshadowed the end of the 1990s surge in stocks. Shiller wrote that farms are, quote, “my favorite dark-horse bubble candidate for the next decade or so.”
However, York, Nebraska ag banker Kendell Holthus, does not share Shiller’s concern.
“If prices of commodities go down, we might see a slight decrease in value,” Holthus says, “but I really don’t see a huge bubble.
“I think most bankers across this state and across this country really learned a valuable lesson from the 80’s—and they’re not going to have such high ‘loan-to-values’—to where, if there is a slight decrease, they’re going to get themselves in trouble.”
And Holthus says farmers today are in a much stronger financial position.
“Even if we do see a little bit of drop in valuation, most of those producers have a lot of equity. They might be 40 or 50 percent loan to value,” he says, “and the producers that are buying the ground right now, they’re coming in with a lot of cash. It’s been a great two or three years for them and they’re paying maybe half or better down on that purchase.”
Holthus says the interest from outside investors is not as great as it was two or three years ago. “We used to see a lot of 1031 exchange money come in and want to invest in agricultural properties—but the last couple years, we’ve been seeing farmers buying from farmers.
“They’ve had the money—commodity prices are good—and this last year or so, livestock prices are good–so they’ve had the money to invest in it,” Holthus says. “Most farmers just continue to grow, just like any business. If a piece becomes available—especially if it’s a neighboring piece—they’re going to try to buy it.
“They’re not making any new ground.”
Holthus is the executive vice president for commercial and ag lending at Cornerstone Bank of York. According to FDIC records—among all banks in Nebraska in 2010—Cornerstone ranked fourth in farmland lending at just over 90 million dollars. That’s more than double what it was in 2007.
Holthus is also the incoming chairman of the Nebraska Bankers Association.
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