Interest rates, farm bill uncertainty top watch list for land values, sales

WABASH, Ind. — A year ago, variability and volatility were the watchwords for farmland values and sales going into 2023.

As 2024 dawns, Howard Halderman, president of Halderman Farm Management and Real Estate Services, said he is looking toward Washington, D.C. — and around the world — for events and issues that could impact U.S. farmland values.

“Do we get a farm bill this year? Or, is it just renewed for another year? I think that bears watching and what gets put into that, or cut out of it,” Halderman said.

Interest rates are another major factor that can and has had an impact on farmland sales and prices.

In mid-December, members of the Federal Open Market Committee voted to keep the benchmark rate steady. They also indicated the likelihood of three quarter-point rate decreases in 2024.

“I think it will stimulate some sales of housing, from a residential standpoint, but I think lower interest rates probably will strengthen many forms of real estate, including farmland, just because you will have a lower cost of borrowing the money,” Halderman said.

Halderman said he is also keeping an eye on global conflicts in the Middle East and in Ukraine — and the potential for other conflicts.

“Do they expand? Does it embroil more of the global economies, other countries? Does China try to do something with Taiwan? To me, those would be the black swan events, that the U.S. could be dragged into more conflicts,” he said.

“I hesitate to say ‘war,’ but if you get into more fighting around the globe, that really sees global economies suffer and that could lead to less trade, therefore lower commodity prices.”

Another bit of uncertainty is the upcoming presidential election cycle. But Halderman said he doesn’t expect that to have a major impact on the farmland market or values.

“I don’t think it’s going to be a negative for farmland at all. I don’t think either party, whichever wins, I don’t think either one is going to come out in a draconian way, with heavy environmental legislation or anything like that, that would be really negative. I just don’t see that happening by either side,” he said.

Halderman added that more government stimulus payments are unlikely due to the ongoing federal budget concerns.

“I don’t see either side — the money is just not there to do a bunch of stimulus that would create more trade or something that would benefit ag. I think it’s pretty neutral,” he said.

For 2023, buyers of farmland became more selective about where they put their money.

“I think higher input costs and higher interest rates made it easier for farmers and buyers of farmland to say, ‘That below-average farmland, I just don’t need that like I felt I needed it a couple years ago,’” Halderman said.

“What we saw were farmland values for that below-average land maybe slip a little, 5% to 10%. Prime farmland continued very strong and maybe up a little bit.”

The 2023 Purdue Farmland Value and Cash Rent Survey, conducted annually in June by the Purdue Center for Commercial Agriculture, showed the smallest increase in value for poor-quality farmland in Indiana.

The survey polls ag lenders, farm managers and farmers on land values, price and value of top, average and poor-quality land, annual cash rental rates and long-term corn yield for productivity.

Statewide averages on land quality showed that top-quality land, with an average corn yield of 221 bushels per acre, had an average value of $12,808 per acre in 2022. That increased by 7.3% to $13,739 in 2023.

Average land, with a yield of 193 bushels per acre, had a value of $10,598 per acre in 2022. That increased 5.8% to $11,210 in 2023.

Poor-quality land, with an average, long-term corn yield of 165 bushels per acre, was valued at $8,631 per acre in 2022. That did increase by just 0.7% to $8,689 per acre in 2023.

Halderman said higher interest rates weighed more heavily on the sales of that lower quality farmland, but also had a dampening effect on the top end of the market.

“I think it caused the market to go flat for the better farms. We are not seeing too many records set, like we saw two years ago. The market is staying pretty steady for that above-average or average land,” he said.

In the fourth quarter, optimism, over interest rates and better-than-expected yields, helped sales and prices of farmland pick up the pace to finish the year strong.

“We had very good volume in November and December, like we did a year ago. The market just seemed a little stronger because, I think, yields came in better than most people expected and we had a little more clarity around the interest rate market, at least that we had peaked and maybe we would start to see some declines next year,” Halderman said.

“I think people got a little more confident in their bidding as we got into the November and December sales.”