Farmland prices may be bubble waiting to burst, group warns

The following appeared on page 3C of the St. Paul Pioneer Press Wednesday May 7, 2008 edition.

By Tom Webb
twebb@pioneerpress.com

Farmland prices are booming across the Midwest, fueled by higher crop prices and speculative bidding.

Now, a Minnesota policy group warns that farmland fever has entered a bubble phase, and urges lawmakers, growers and rural lenders to confront it now, before the party ends and the fallout destroys a new generation of farmers and rural business.

"Minnesota agriculture is riding high - perhaps too high to be sustainable," Minnesota 2020 said in a report released Tuesday.

Prime Minnesota cropland that once grew gasps at $4,000 an acre is now fetching $5,000, even $6,000 an acre. In North Dakota, one survey found that farmland prices rose 46 percent last year, bid up not only by farmers, but also hunters, retirees and speculators.

Matt Entenza and Roger Moe, two former DFL legislative leaders, both have memories of how a similar boom in the 1970s fueled the disastrous farm crisis of the 1980s. Back then, "a lot of farmers took on a lot of debt because they thought prices wouldn't go down," Entenza said. When prices collapsed, it proved ruinous for rural Minnesota.

Now, the liberal-oriented 2020 policy group worries that history is repeating itself. Entenza urged farmers to understand that "debt is their enemy," and use these good times of high crop prices and land values to pay down debt, not borrow lots more.

"Folks said the Internet boom wouldn't end, folks said the housing boom wouldn't end," Entenza said, later warning, "These (farm) prices will burst, and if they (farmers) end up with a lot of debt, they will go down."

The group is asking state government to fully fund a University of Minnesota debt-management program that was helpful in the 1980s. And it wants policymakers to re-examine old policies and programs that once proved useful at keeping rural businesses alive, farmers on the land and communities thriving.

Meanwhile, corn prices continued to soar, moving sharply higher Tuesday on worries about planting delays.