U. S. farmland could be the next asset bubble at risk for bursting, a leading banking regulator said Oct. 18.
Sheila Bair, chairman of the Federal Deposit Insurance Corp., said it was important to monitor U. S. farmland values for signs of instability like the price bubbles in the housing and stock markets that burst with disastrous consequences for many investors.
Farmland values remain 58 per cent above their 2000 levels in inflation-adjusted terms. Investors have been snapping up high-quality land in the Midwest where row crops like corn and soybeans are grown as well as orchards for high-priced nuts and berries along the U. S. West Coast.
While commercial and residential real estate prices have fallen sharply, farmland valuations have remained strong during the recession. But Bair said those “positive fundamentals” could change.
“A sharp decline in farmland prices similar to the early 1980s could have a severe adverse impact on the nation’s 1,579 farm banks,” Bair said in a speech delivered to a risk management group in Baltimore.
“While the credit structure underlying U. S. farmland does not appear to involve excessive leverage or inappropriate loan products, this is a situation that will continue to require close monitoring,” she said.
Bair is a member of the newly established Financial Stability Oversight Council made up of the Treasury, the Federal Reserve, the FDIC and other financial regulatory authorities. FSOC held its first meeting on Oct. 1.