Land prices likely to decline with rising interest rates
An ag economist says a benefit of rising interest rates could be a decline to land prices and rents.
“I think it’s really important for farmers to watch the inflation rate because it’s an indicator of where interest rates are going.”
Carl Zulauf with Ohio State University says the ratio of farm land prices to rents has an inverse relationship with interest rates and any significant rate increase will likely have at least a three-year impact.
“Probably next year it’s going to cost more to borrow the money to put out the crop even if production costs to not increase because of interest rates increasing,” he says.
Zulauf tells Brownfield if rates were to increase from the current 1.5 percent to the average 10-year US Treasury bill rate of 6.1 percent, “That would translate into approximately a 20 percent decline in the price of farmland, assuming that rents stay where they were as of 2021,” he estimates.
He says there are many factors in local land environments that affect prices more than interest rates, but significant increases historically cause pressure on those markets as well.