Land values and interest rates: will Iowa farms sink or swim?

11/29/2018

Land values and interest rates: will Iowa farms sink or swim?

Dr. Alejandro Plastina Assistant Professor, Economics

2018 ICM

83%

1

11/29/2018

Interest Rates on Farm Real Estate Loans

(% at end of quarter) - VII District

20

18

16

14

12

10

8

2nd Quarter 2018:

6

5.28

4

2

0

19801 19821 19841 19861 19881 19901 19921 19941 19961 19981 20001 20021 20041 20061 20081 20101 20121 20141 20161 20181

Source: Federal Reserve Bank of Chicago. Updated Nov 9, 2018

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Economic Fundamentals driving Land Values

Land Values = Localized Net Income Universal Interest Rate

Higher Income, higher Land Value Lower Interest Rate, higher Land Value

11/29/2018

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11/29/2018

Iowa Farmland Value ($/Acre)

Source: Iowa Land Value Portal

4

11/29/2018

Farmland values and Net Farm Income (cash) in Iowa

$/Farm

NFI Cash (left axis)

Land Value (right axis)

$/Acre

$250,000 $200,000

+389%

$8,716

$10,000

-16% $7,326 $8,000

$150,000

$6,000

$100,000

$4,000

$50,000 $0

$1,781

+376%

-74%

$2,000 $0

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Sources: Iowa Land Value Portal & Ag Decision Maker File C1-10

Why haven't land values declined further?

Limited Supply

DECREASING VOLUME OF FARMLAND SALES

Sources: Kansas City FED, Ag Credit Survey. Feb 2018

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