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Published December 21, 2010, 10:06 AM

The Farm Belt is booming

NEW YORK — The overall U.S. economy may be struggling, but you would not know it from a visit to the Farm Belt.

NEW YORK — The overall U.S. economy may be struggling, but you would not know it from a visit to the Farm Belt.

A boom is under way across much of the rural Midwest, with agricultural land prices growing at a double-digit clip and farm auctions in certain counties fetching record sales.

One question to ponder: Is this boom rooted in genuine economic gains, or is it another Federal Reserve-induced asset bubble?

We lean toward the bubble view.

Rising farmland values

The Federal Reserve Bank of Chicago reported in November that farmland values across the Upper Midwest have jumped 10 percent since 2009. The year-over-year increases were more dramatic in some states — 13 percent in Iowa, 11 percent in Indiana.

Irrigated cropland is up 11.8 percent in Nebraska and 12.2 percent in Kansas, according to the Kansas City Fed’s most recent quarterly survey, which also relays this comment from one district banker: “Land fever is running rampant.”

‘Land-grab mania’

The signs of a land-grab mania are everywhere. The Des Moines (Iowa) Register reported recently that two tracts in O’Brien County in the northwestern part of Iowa sold for $9,700 an acre, while one land broker estimates that farmland has appreciated on average by about $1,000 an acre since the end of the summer.

Reports of bidding wars and $2,000-an-acre premiums for top farms are common.

More than anything, this real estate boom is a result of the extraordinary rally in crop prices.

Even after record prices in 2007 and 2008, the price of corn has climbed 48 percent since June alone, while soybeans, wheat and other key grains all are trading well above their prices only a year ago.

Assets in ag country

In the near term, this commodity boom is wonderful news for the rural Midwest.

Rising grain and land prices flow through the larger agricultural economy, with farm equipment manufacturers, seed and fertilizer companies and rural financial services all along for the ride.

The problem comes if the boom is an artificial, money-fed bubble.

The mid-2000s witnessed a similar euphoria over U.S. housing, with the Fed also declaiming that the boom was rooted in a natural growth in demand from immigration and younger families. We know how that turned out.

We hope Fed Chairman Ben Bernanke is right when he says asset bubbles and price spikes in commodities are nothing to worry about.

Of course, he said the same thing about housing and oil in the last decade.

We are not predicting an imminent bust, but we do hope someone at the Fed is watching prices grow in farm country.