Boy, am I lucky. According to Virginia Tech economist David Kohl I have a front row seat to the epicenter of the Farmland Bubble.

He says that, “It is located in the Upper Midwest and its epicenter is right between Worthington, Minn. and Sioux Center.”

If I was Sarah Palin and we were talking about Russia, I could see it from here.

I think that we could pin down the location that Dr. Kohl thinks that he is seeing even closer to Sioux County.

There has been a ripple effect in farmland prices that if you dropped a pebble on Orange City there has been a visible impact on farmland prices that has extended several counties away even crossing state borders into Minnesota and South Dakota.

We have felt it in Clay County two counties away.

Why is this the epicenter? This region was inhabited by Dutch and German linage and is one of the most industrious and wealthiest agricultural communities and regions in the country.

They are so diverse with livestock production that I doubt that they import much commercial fertilizer. In fact, one of the reasons there is so much demand for farmland there is to add acres to manure management plans, buying a place to go with manure.

You know you are there if you have an open air vent on your vehicle, but there is a strong consensus in the community that the aroma is the smell of money.

They are highly educated, aggressive adopters of technology, and experienced operators who are the best at what they do. These families had been farming for generations before becoming Americans so there is a long linage to their creation of wealth that has been passed on through generations.

In fact, they are so steeped in equity that I don’t think that the boom there in farmland prices really fits the definition of a bubble. Typically the words “speculative” and “bubble” go together and suggests that buyers have employed maximum leverage. There is nothing speculative about this bubble nor is the leverage there typical of bubbles.

For example, the Farm Credit System will borrow a maximum of approximately $5,800 per acre no matter whom to or where it is. Those buying farm land in Sioux County for over $20,000 per acre are using their own money … real money.

I don’t think that many of them are employing any significant leverage to make these purchases. The prices are so high because they don’t have to borrow money.

Cash on the barrelhead is not something normally described as a bubble. There can be some irrational exuberance where someone pays too much, but cash buyers can afford it.

They are long-term investors, meaning that once a farm is owned it will never be sold. We had an ag depression in the mid-1980s, and the farmers in Sioux County pretty much chose not to participate. If they had the equity to survive a depression virtually unscathed I think that they can survive an economic boom that they paid cash to create.

I see them more as a bellwether as to what an ag community could be if they employ their resources properly and efficiently, setting an example of rural economic success.

It takes a village to build an economy, and all the ag suppliers and bankers pitch right in to make sure it all comes together there.

I can see where an economist could find in the statistics where land prices rallied the most and think that they located the epicenter of a bubble.

The truth is that there is a lot more demand for farmland there than land for sale could satisfy and if prices fell, even more demand would be uncovered. Generations of equity support the economy there.

There is one more caveat to this price record that is explained by ISU’s Dr. Elwynn Taylor. He says that western Iowa has experienced an increase in annual precipitation that has resulted in higher crop yields.

The whole state is getting more rain than it used too, but eastern Iowa was already getting all the rain it needed for maximum yields before, and western Iowa was consistently too dry.

More rain allowed yields in western Iowa to catch up with eastern Iowa, and land prices reflected that with larger gains in western Iowa.

There have been a lot of gloom and doom economic forecasters out there painting a very bleak picture for the outlook.

I sense they are trying to make up for missing the forecast for the ag depression of the 1980s altogether. None of them forecast that downturn.

The best description of what I believe we are seeing today in the ag economy came from Purdue Economist Chris Hurt. He said, “This is a period of moderation, not a bust.

“It’s a positive in the long run for agriculture to reset the balance between crops and livestock, bring some moderation in prices of inputs, and help farmers become more cost conscious and efficient.”

Not a bust, but moderation, a consolidation. If Sioux County represents the epicenter of this land bubble then we are in pretty darn good shape.

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.