Since he already told you his bid, there is going to be an uncomfortable situation in one way or another unless you don't bid. Here's what I would do, take it for what it's worth.

I'd talk to him personally, no phone call...ask if he wants to grab lunch or something. Say to him you want to talk to him about the conversation the other day about the land and his bid. Tell him that you should have said something at the time but he caught you off guard. Say you had heard about it, tell him when and how you heard about it, and that before he talked to you, you were planning on bidding before he told you he was as well. Say that you were going to offer a rough average of what you pay on other ground, and that makes it higher than his bid. Don't tell him how much it is, and leave it up to him to raise his bid. Say you'll leave your bid where it is, and if he beats it you won't up yours. Long story about how you don't want it to cause a problem etc etc, how bad you feel about not bringing it up right when he said it. Say we'll probably both get blown out of the water anyway with a laugh. End the conversation talking about something else and pick up the tab for lunch or whatever. Basically express what a crappy situation it is and the bad position it puts both of you in.