Is The Farm Bubble About To Burst?

By Gerard Mastra (Brooklyn Trader)
5-23-2013

For over a year I have been researching Farms, that's right Farms! Ok, well why would Brooklyn Trader want a Farm? Why not? I can day trade Forex and look out the window of my many acres and see my Cattle. Cool right? After all I have been born and Brooklyn and raised in NYC and been living among wall to wall people....time for a change. Well if you listen to Jim Rogers a lot like me you may start to believe everything he says. One thing he is always preaching is "Farmers will be the next ones driving Lamborghinis and the Wall Streeters will be out of work". Well I think listening to those videos along with the idea of living "On the land" would be nice. When I first told my wife about this idea she thought I was nuts, I girl who who has more pair of shoes than I have hair on my head. How can anyone think that my wife raised and from Manhattan would want to live on a farm. Well she was thinking it may be a nice change also. We looked at several farms and even bid on one until I woke up. That's right one day I pictured myself on a farm and I got a little nervous as we neared the time to actually make this move. One of my main reasons for not following through with this endeavor was I am concerned we are ready for the Bubble to break.
Now that the AUD/USD has began to sell along with commodities I think we will see at least a 20-30% correction in Farm land in the next 2 years. Bottom line is if right now is not the time to buy farmland as an investment.

Data compiled by Banks show the rapid increase in farmland prices, particularly in the Midwest are at 'bubble proportions'. The KC Fed said irrigated cropland in its district rose 30 percent during 2012, while the Chicago Fed reported a 16 percent increase.

“Investors who are seeking a positive return on their funds have shied away from bond markets,” the council said. Instead, they opted for real estate “as both a hedge against inflation and a means of achieving better than the negative real return associated with fixed-income securities.”

The land-price gains have continued even as commodity prices have softened. The S&P GSCI Agriculture Index reached a record in March 2011 and has since fallen 25 percent.

As I wrote last month, this isn't really a huge concern for actual farmers, who will be holding on to land for generations to come. It's a problem for people who see double digit increases and think they'll come for perpetuity. They won't, and we'll probably see a correction in land values quite soon.

That's fine if you're planning on keeping the land for some time. Not so much if you're speculating on the farm bubble. Just ask the geniuses who bought houses in 2006 and 2007.

My confirmation on this possible bubble happened yesterday. The FOMC minutes revealed that we maybe ready to decease bond buying which has increased the value of the USD, this is further proof to me that we may be ready to sell in equities.

How Do We Trade This?
Well Forex pairs like the AUD, CAD and the NZD will be hit. We have already seen a big move as the markets are forward looking. I wish I could short the farmers but I have not figured out how to do this. Several indexes can be shorted with regards to AG stocks, I will wait for a rebound then get short. I will wait a few years until I buy my overalls..Then again will I really do this? I think it has made a great conversation and was fun to see peoples faces when I tell them I am buying a farm.

Here is an interesting video about a Billionaire who is buying up farms. Well many Billionaires lose money on investments, we will see in the next 6 months what happens to the price of Farm land.