Farmland values across the U.S. increased substantially in many regions last year. What drove this growth in farmland prices?
In one of the sharpest rate increases in decades, the Fed raised the federal interest rate from 0.08% in January 2022 to 4.1% in December 2022. However, this increase is unlikely to immediately affect farmland values. While higher interest rates typically put downward pressure on the land market, impacts aren’t usually seen until one or two years after the increase.
The real mortgage rate is one of the best predictors of farmland value change. Since interest rates were low and inflation high for a big part of 2022, the real mortgage rate — calculated as the mortgage rate minus inflation — remained negative.
As of February 2023, it is currently approaching zero with a 6.33% mortgage rate and 6.6% inflation rate (based on the latest available data from November 2022). A 0.3% value indicates positive increases in farmland values of +8.8%.
[See Farmland at Risk: An FBN Special Report for more information on these trends.]
On average, the farming sector is in an excellent financial position. The debt-to-asset ratio is low, indicating that farmers have used the high net income period to build equipment and financial reserves.
While it is impossible to forecast precisely how these factors will play out in future months, our latest farmland valuation article series spotlights pricing and land sale activity across Illinois, Iowa and Minnesota. These trends that will continue to shape the farmland marketplace in the future.
The article series from FBN® Data Science delivers data-driven insights on trends related to farmland values in Illinois, Iowa and Minnesota by exploring:
Why farmland values increased nationally in 2022
Broad, state-level trends in transaction values and sales volume
A detailed analysis of each of the United States Department of Agriculture (USDA) agricultural districts in each state.
What will happen to farmland prices in the next few months? Will farmland values decrease or increase? By developing a series of data-based models to gather investigative insights, the FBN Data Science team forecast its expectations for price changes in 2023.
Farmland is an essential asset for most farmers in terms of value and importance for their long-term success.
At FBN, our team of data scientists and appraisers puts Farmers First® by continuously monitoring the farmland market to provide transparent, timely and actionable insights. We believe that delivering trusted reporting is essential to creating a better farmland marketplace that’s more fair for farmers — whether buying, selling, or refinancing.
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