Bubbles tend to be fueled, he said, by (1) easy access to credit for purchasing capital assets, with someone willing to accept lots of risk; (2) widespread uncertainty about the level of economic fundamentals and their future outlook, and the magnitude of risk misunderstood by market participants; (3) markets that allow participants to easily capture capital gains along the way and/or roll capital gains into ever bigger bets; and (4) new demand (uninformed market participants wanting to enter the market.

“The risks to farmland values are highly non-linear,” Gloy said, “and there is great uncertainty about the level at which farmland will trade in five years.

“While it is not clear to me that, on balance, land is dramatically overvalued at present, that can change rapidly.”

Shonda Warner, representing Chess Ag Full Harvest Partners LLC, a privately-owned farmland real estate investment trust, said investors have seen a number of benefits from direct investment in farmland:

• Farmland investment shows returns similar to the stock market, with less risk.

• Returns are not correlated to the stock market or other commercial real estate markets.

• In inflationary periods, returns tend to correlate positively to inflation.

• Farmland is a ‘hard’ asset, not subject to the vagaries of price fluctuations for securitized assets.

• Farmland is not heavily leveraged as a sector.

• Farmland is the ultimate residual claimant of returns to agriculture.

• There are many years of data for farmland, making statistical and risk analysis more robust.

Changes in production agriculture create opportunities, Warner said.

“There are large economies of size in farming. We’ll soon see rapid consolidation in production. Dramatic reductions in per-unit production costs will ensue. As they push for growth, farmers will prefer to rent, not own, an increasing portion of the land they farm, thus increasing rents.”

Large economies of size could spark rapid growth, Warner said. “Intergenerational wealth transfer, coupled ith debt, will not keep up with the growing demand for capital, and both demand and supply of capital will commercialize.”

The rough average for rent to value yields in the U.S. over the last 50 years is around 5 percent, Warner noted. “Intelligent investment might suggest you’d want to buy around that level or better.”

Suitability for agriculture is “always important,” and the landowner/tenant relationship “is critical.” The suitability of land for non-ag benefits, such as home sites, hunting/recreation, water/wind/carbon credits, and minerals value is also important.

Some “warning bells and possible pitfalls,” Warner said:

• Extreme runup in commodity prices due to massive index fund investment. “Once investors are no longer in love with these liquid instruments, and supply/demand economics in global production stabilize, prices for both grains and, ultimately, farmland could come down in a more volatile fashion than they would normally do if no futures speculation existed.

• Vastly increased institutional ownership could cause land prices to rise faster than theny should, or normally would, given that farmers and experienced investors are aware of the volatility of commodities and know not to pay too much attention to short-term volatility — factors inexperienced new investors in the agricultural sector do not understand so well.

• A fast jump in interest rates or inflation could destabilize the sector, probably more due to the levels of operating leverage than leverage of farmland itself.

• Input costs rise even faster than grain prices.