FDIC: Ag Prices Need Oversight

WASHINGTON — Federal Deposit Insurance Corp. Chairman Sheila Bair said escalating farmland prices is the kind of market event regulators need to keep an eye on to prevent the next crisis.

At an FDIC symposium on the agricultural sector Thursday, Bair said while rising values and expanding portfolios are not immediate causes for concern, they could pose trouble when prices eventually decrease.

"The short answer is that while we don't see a credit problem in agriculture at this time, the steep rise in farmland prices we have seen in recent years creates the potential for an agricultural credit problem sometime down the road," she said. "And that's precisely the sort of long-term risk that farm operators, lenders and regulators need to stay attuned to as they carry out their day-to-day business."

Over the past decade, farmland prices — adjusted for inflation — have increased 58%, and agriculture is one of the few sectors where credit is flowing. But that growth has prompted questions over whether agriculture could be a bubble waiting to burst.

Bair said even though the current boom is "good news," farming is still a volatile industry, affected by everything from weather patterns to fertilizer costs.

"It is … our responsibility as prudential regulators to constantly monitor developments in key industry sectors such as agriculture," she said.

The financial crisis, Bair added, emphasized the need for monitoring market events at "the macro level." She cited the creation of the Financial Stability Oversight Council as a step toward spotting risks before they cause problems.

"It is clearly one of our primary tasks as prudential regulators to monitor a wide range of risks — large and small, near and far — to become as informed as possible as to their nature, and to be as prepared as possible for the contingencies associated with them," she said. "It is in that spirit that we convene today's farmland price symposium."