Big investors seem to have forgotten how to exist without some sort of speculative bubble. In the last decade, they’ve whipped cash from tech stocks to bonds to emerging markets to real estate to junk mortgages. With the latter bubble now deflating rapidly, they’ve turned to … Midwestern farmland?

Yes, big cornfields. Here’s a Chicago asset manager talking about who’s buying up farmland, quoted in USA Today:

It’s everybody from the person concerned about the stock market to large government and corporate pension funds, insurance companies, hedge funds. [!]

Investors do like a sure bet. With the 2007 Energy Act mandating that corn-based ethanol production double yet again over the next several years, investors are fairly sure that corn prices will keep rising — pushing up land values accordingly.

Average Midwestern farmland values have doubled since 2000 — and rose 20 to 23 percent in 2007 alone in Iowa, Nebraska, South Dakota, and Wyoming, USA Today reports.

Besides land speculators, who does this trend benefit — and who loses?

Clearly, a lot of Midwestern farmers own swaths of land and have seen their net worths jump over the past several years. Like Manhattan co-op owners who bought in the 1970s, these people are sitting on large paper gains.

But by no means do all farmers own their land. In Iowa, for example, some 45 percent of farmers rent all or part of their land. For these folks, rising land values have meant higher rent payments.

Worse, say you’re a young person wanting to start a new farm — say, a produce farm designed to sell fancy veggies to all those newly rich farm owners. You’re now literally competing with hedge funds for land.

But I doubt the trend can last. At some point, corn-based ethanol just has to collapse under the weight of its vast ecological liabilities. When it does, corn prices will dive, taking land prices along for the ride.

And things are already looking a bit frothy, as the stock analysts say. One analyst says he expects farmland prices to rise at a 6 to 12 percent annual rate over the next three years, compared to gains in farm income of 4 to 5 percent.

In other words, land prices are rising faster than the income the land generates — sure sign of a bubble.