Economists Look At Factors Impacting Farmland Market Value

A recent article in the Federal Reserve Bank of Kansas City’s Main Street Economist asked, “What are the Risks in Today’s Farmland Market?” Omaha, NE Branch Executive Jason Henderson and Brian Briggeman, economist, consider whether other factors, such as low interest rates, are driving current farmland values. The article explores the risks in today’s farm real estate market and analyzes whether the recent surge in farmland values is sustainable.

Farmland value is typically based on the expected revenues from agricultural production. Henderson and Briggeman explain that farmland values often rise with persistently low interest rates. Low interest rates lift farmland values by increasing the capitalized values of income earned from land ownership. Conversely, in higher interest rate environments, farm incomes tend to fall and capitalization rates rise.

The article finds that if interest rates rise to more-normal levels and crop prices swoon, land values could fall, suggesting that farmers could experience a deterioration in their balance sheets.

The complete article is available in the recent research section of the agricultural and rural economies page at FarmEquip.org/ShortLink. ◆