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Talks of a farmland bubble have been in the headlines for at least a year.In 2011 Project Syndicate column, economist and bubble-expert Robert Shiller had warned that farmland was his “favourite dark-horse bubble candidate for the next decade or so”.
For now, Shiller isn’t convinced that it’s a bubble.
In an interview with CNBC, he pointed out that farmland was missing some tell-tale signs of a bubble.
“Why don’t people talk about that (farmland bubble). Especially in the Midwest just last year farm prices were up over 20 per cent. It doesn’t have all the hallmarks of a bubble. One of them is most people have never heard of it. In my view of a bubble it’s something that gets people excited. well, some people are excited. But most people don’t even know about it.”
He also pointed out that a USDA study he had read didn’t show “dramatic evidence of a bubble” in farmland. He pointed out the fact that rents on farmland were increasing, which added to signs that this might be an “overreaction” rather than a bubble.
“There are things driving rents up. Notably biofuels are becoming more important and not just biofuels but plastics and other things that are made out of soybeans and corn,” he said.
“There is a world food shortage that has been remarked about in the world food market that has been remarked about in the newspapers. All these things are fundamentals that might well drive farmland up. Now it seems to me very vitally the world could overreact to that but I can’t prove that.”
Furthermore, he also said he doesn’t think credit standards are too easy for farmland.
“I doubt it the way banks are lending. Not everything is driven by credit. In fact you know that’s one reason to doubt that the farmland epidemic will really be huge bubble, because banks are more cautious now.”