Over the last few weeks, the media has been focused on a “bubble” in the farm sector and farmland values. On December 9th, 2010, the Wall Street Journal published an article, “The Farm Belt Boom,” which argued that farmland values were in a bubble, induced by the Federal Reserve’s expansionary monetary policies.

We sent a Letter to the Editor with a rebuttal that was published on December 14, 2010, under “How You Gonna Keep 'Em Down on the Farm? Profits!” See our letter below:

You argue that farmland may be in a bubble driven by expansionary monetary policy. Farmland values have appreciated over 10% in the last year in the Corn Belt, but agricultural fundamentals are the best in decades. Grain supplies are at decade lows, driven by emerging-market demand, disappointing U.S. yields in 2010 and continued support for biofuels. The Federal Reserve's quantitative easing and a weaker dollar have been tailwinds for agriculture, but rising farm income and cash rental rates justify the appreciation in farmland.

With corn prices above $5 per bushel, prevailing cash rental rates would argue that farmland values on average are undervalued at today's prices. Farmer balance sheets are at the most conservative levels in over 40 years. The Agriculture Department estimates that farm income rose 31% in 2010, allowing farmers to reinvest their cash flows back into farmland to expand their operations.

Farmland has been the hot asset class over the last six months, but we believe the current fundamentals justify the increase in price and that the farm sector is in the beginning of a long-term bull market.

If a 10% appreciation in 12 months justifies a "bubble," then we need to be using the word bubble much more frequently. I would hate to know the term used to describe the ascent in Apple stock.

Greyson S. Colvin
Managing Partner
Colvin & Co. LLP
New York

Read the full article at:

http://online.wsj.com/article/SB20001424052748703766704576009860109089184.html