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Why are rising farmland values showing a speculation bubble?

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Quick Answer

Rising farmland values are showing a speculation bubble because it is unclear whether the current upward trend can sustain itself. Because of a rise in income and the small number of farms for sale, the price of farmland has increased. The potential of new land for sale is low, and much farmland is owned by aging farmers who do not intend to sell. This provokes further questions regarding the stability of farmland prices.

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Full Answer

Since farmland prices continue to increase at staggering rates, many economists doubt the likelihood of the speculative bubble bursting. Most believe that the market will plateau instead of combusting.

The burst of the farmland bubble would likely not impact real estate outside of the agricultural sector, but it could still harm small farmers who owe a large sum of money on loans. Declines in the price of crops would force those farmers to try to sell their land, which would be next to impossible if the property value were to decline. They would be forced to accumulate more loans to stay afloat, perpetuating the debt cycle.

Prices of farmland in the United States have doubled and are projected to rise more than 10 percent per year. This is, in part, due to cattle farmers raising bulls, as they yield a greater sale value than traditional crops.

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