Interest Rates May Not Impact Demand for Farmland

An ag economist says high interest rates may not have a major impact on the demand for farmland heading into 2023. Nathan Kauffman is with the Kanas City Federal Reserve Bank. “Normally, what we would expect when we see high interest rates is that it could push back on the sentiment on farmland, but there have been lots of other aspects related to uncertainty that, I think, makes farmland an attractive investment for some.”

Kauffman says the war in Ukraine and strong farm income are influencing demand. He also noted that some of the land is being purchased by investors. “With that said, higher interest rates may change some of their calculus about where they think of investing or what returns might look like.  Farmers are relatively active. It’s been a strong year for farm income.  Many farmers are still in a pretty strong financial position to consider additional purchases.” He says that could change if commodity prices drop and expenses remain high.

Editor’s Take:

In last week’s AIR, we reported that farmer net worth increased by over a trillion dollars since 2012. One of the primary reasons for such a surge was the value of their largest asset – land. In addition, generally speaking, if a piece of land becomes available in their area, especially if it is immediately adjacent, farmers will do almost anything to get it purchased. They know it is likely to be a once in a lifetime opportunity. Mr. Kauffman is spot on with his analysis. Farm income is strong, land values are near record highs and land is in short supply. If it becomes available – farmers/ranchers will buy it despite what interest rates are doing. Besides, many of them can pay cash! Farmers are your best prospects as truck inventories begin to build again….