Farmers and investors with cash in their pockets are still looking to buy as farmland prices continue to soar, but brokers say beware of the bubble.
Area experts say land prices have risen at an unprecedented pace during the past few years, and they expect 2013 to be no different.
"In the last three years, it's been pretty wild," said Jerry Wallace of Fisher-based Wallace Land Co.
But Bill Kruse of Gibson City-based Bill Kruse Auction Service warns that investors and farmers should try not to get ahead of themselves. The cash in their pockets seems to be fueling the purchases, and that could begin to dwindle in the future.
"My opinion is we're sitting on a bubble," Kruse said. "I think that bubble could break any time the corn goes down to $4 or something like that."
And when that happens is anyone's guess.
"When it's going to break, nobody has that knowledge," Kruse said.
The U.S. Department of Agriculture is predicting a rebound in crop yields after last year's drought, resulting in record production levels for corn and soybeans this year. The federal agency expects U.S. agriculture exports to be at an all-time high.
When that kind of record production happens, Wallace said, the land prices go with it.
The USDA, however, also warns that last year's outlook included a prediction of record corn and soybean production. Instead, farmers got drought and record corn prices, so there is still a degree of uncertainty.
More than half of the United States remained in drought conditions as of February, according to the USDA. Last year's drought did not hurt farmers too badly, as long as they had crop insurance.
But a number of factors have driven those land prices during the past few years.
"It's kind of the perfect storm," Wallace said. "Grain prices have been high this last year. Even though we had a drought, the crop insurance kind of kicked in and filled the gap we had with the drought."
Land prices have jumped 15 percent to 20 percent in some areas, Wallace said. While Champaign and some of its surrounding counties have not seen the extreme price jumps, he said, Sangamon and McLean counties have done pretty well.
Land in Champaign County will probably fetch about $12,000 per acre, Wallace said, but land in parts of Iowa have been known to go for $20,000 per acre.
Murray Wise of Champaign-based broker Murray Wise Associates agreed with those estimates — he said an acre of farmland in Champaign County could sell for $12,000 "with very little effort."
But his approach is caution, he said. At the current prices, buyers should be prepared for volatility in the market.
"At these prices, it's just scaring me at the moment," Wise said.
Net farm income has never been higher, he said, and the global pension industry has "slowly but methodically" discovered agriculture as a great investment.
But looking three to five years out, Wise expects higher interest rates and higher inflation.
His advice to prospective buyers: "Use caution, caution and caution," he said. "The volatility of this thing could really kill you."