Hedge Farm

by Caleb Stegall on May 19, 2011 · 10 comments <span>Print this article</span> Print this article

in Short

“[I]n February, Thomas Hoenig, the president of the Federal Reserve Bank of Kansas City, warned against the violent possibilities of a farmland bubble, telling the Senate Agriculture Committee that ‘distortions in financial markets’ will catch the U.S. by surprise again. He would know, because he’s seeing it in his backyard: Kansas and Nebraska reported farmland prices 20 percent above the previous year’s levels and are on pace to double values in four years. A study commissioned by the Organization for Economic Cooperation and Development and released in January estimated the amount of private capital currently committed to farmland and agricultural infrastructure at $14 billion. It also estimated that future investments will ‘dwarf’ what’s currently being thrown into land, by two to three times. Further down, the study makes a conservative projection that the amount of capital potentially entering the sector over the next decade will fly past $150 billion.  When asked if this is an end of the world scenario, the hedge-fund manager replied, ‘It really is. I tell my fiancee this from time to time, and I’ve stopped telling her this, because it’s not the most pleasant thought.’”

{ 10 comments… read them below or add one }

avatar D.W. Sabin May 19, 2011 at 12:26 pm

Gee, its just too damned bad the speculators cannot find a way to manipulate a market for the air we breathe. With the deficit growing as it has, any fool could have predicted a global wildfire of inflation. Perhaps when the clueless citizen finds his stomach growling, his gullibility might finally be surmounted.

avatar Barry A. McCain May 19, 2011 at 1:02 pm

Speculation–good or ill–wouldn’t be possible without the ability to borrow large sums of “money” at low rates, for relatively little in “assets”. And the Grand Pooh Bahs at the Fed , in their infinite wisdom and penchant for “quantative easing”, show no signs of a rapid reversal of that brand of economic “stimulus”.

avatar Marchmaine May 19, 2011 at 4:46 pm

I don’t think the Fed Commissioner is calling it correctly; this is not a bubble, it is clearly a flight to quality.

The fact that Hedge Funds are hedging via farmland (if true) is indeed frightening, but not for bubble reasons. It means that the real wealth is returning to the land… where they will set-up shop as proper rentiers for basic materials. That alone should make you pause.

avatar John Médaille May 20, 2011 at 7:42 am

A “speculative bubble” or a “flight to quality,” either way we are screwed.

avatar Carson May 20, 2011 at 9:24 am

Screwed? God, I hope not, I’m only 20. I need a reason to keep going.

avatar CK May 20, 2011 at 1:25 pm

“It means that the real wealth is returning to the land…”

Also, it means that the whole national employment picture dependent on “non-farm payrolls” is going to change dramatically. There will also be a return to just plain old hard work.

avatar John Médaille May 20, 2011 at 1:44 pm

Carson, your reason to keep going is, as I tell my students, that you will have to rebuild the economic and social orders. That is, if you want the job. Otherwise, you’re just screwed.

avatar Brandon May 20, 2011 at 7:06 pm

“you will have to rebuild the economic and social orders”

Daunting task, John, although I suppose it’s better than the other option.

avatar Albert May 23, 2011 at 10:27 am

The Economist has also been sounding an alarm on the possibility of a bubble in farmland for a while, I believe. This latest article indicates to me that those who hold farmland would be wise not to rely on projections of rising land values to fund their operations, as homeowners did in recent years.

Even if this is a flight to quality, there will be volatility in pricing over time rather than a uniform rise, and the fallout of unwise bets on value projections may be enough to force many such landowners to sell their land to those with deep pockets during the deflationary periods.

avatar John Gorentz May 24, 2011 at 9:05 pm

It’s not nice to fool mother nature, and it’s not nice to rebuild the economic and social orders. It’s better when those are organic and grow themselves. We’ve had enough of the non-organic method with its synthetic chemical inputs, which are kind of what put us into the mess we’re in now.

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