March 2024 Wallace’s Farmer MarketPlace Extra

Clues from the Market – #2 Interest Rates

Last month, we began a 5-part series on the most important factors that influence farmland values, including 1) commodity prices, 2) interest rates, 3) input prices, 4) land sale volume, and 5) local historical wealth. In each instance, both the current level, and any recent direction of movement of the factor, can matter. This month, we’re talking about interest rates.

Interest rates are a major undercurrent to our entire economy. The impact of interest rates is most easily understood as a consumer of goods and/or real property. When interest rates are low, it’s more affordable to do just about anything, including buying a farm. Alternatively, when interest rates increase, borrowed money is more expensive and therefore impacts the market towards less consumption. Generally, over the long term, when rates are low, asset values rise – and when rates are high, asset values fall. What is sometimes less evident is how higher interest rates influence investors and capital flows in a market. For several years in farmland, ultra-low interest rates attracted investor dollars in search of better returns. A 3 to 4% annual cash return on land was comparatively attractive. However, when rates rose as they have over the past 18 months, excess investor capital started to flow towards better returns. The simplest example of this is the draw of investor dollars towards short-term CD’s and money market accounts over the past year, which are currently paying at or near 5%. So, interest rates influence both ag producers who may borrow money and farmland investors with excess capital who weigh their investment decisions against many possible alternatives. Thus far, as the sales below reflect, the impact of higher interest rates has not overwhelmed the financial strength throughout the countryside.

NORTHWEST

O’Brien County:

80 +/- acres, located southwest of Sutherland, recently sold at public auction for $17,300 per acre. The farm consisted of 76 +/- tillable acres with a CSR2 of 96.8, and equaled $188/CSR2 point on the tillable acres.

NORTH CENTRAL

Franklin County:

96 +/- acres, located near Latimer, recently sold at public auction for $12,100 per acre. The farm consisted of 94 +/- tillable acres with a CSR2 of 83.1, and equaled $148/CSR2 point on the tillable acres.

NORTHEAST

Clayton County:

77 +/- acres, located southwest of Farmersburg, recently sold at public auction for $11,500 per acre. The farm consisted of 70 +/- tillable acres with a CSR2 of 57.7, and equaled $219/CSR2 point on the tillable acres.

WEST CENTRAL

Calhoun County:

138 +/- acres, located east of Rockwell City, recently sold at public auction for $14,100 per acre. The farm consisted of 135 +/- tillable acres with a CSR2 of 86.6, and equaled $166/CSR2 point on the tillable acres.

CENTRAL

Boone County:

155 +/- acres, located northwest of Slater, recently sold at public auction for $17,800 per acre. The farm consisted of 155 +/- tillable acres with a CSR2 of 83.6, and equaled $213/CSR2 point on the tillable acres.

EAST CENTRAL

Cedar County:

50 +/- acres, located south of Clarence, recently sold for $13,250 per acre. The farm consisted of 48 +/- tillable acres with a CSR2 of 85.0, and equaled $162/CSR2 point on the tillable acres.

SOUTHWEST

Pottawattamie County:

49 +/- acres, located north of Treynor, recently sold at public auction for $12,100 per acre. The farm consisted of 48 +/- tillable acres, with a CSR2 of 71.2, and equaled $173/CSR2 point on the tillable acres.

SOUTH CENTRAL

Decatur County:

120 +/- acres, located south of Leroy, recently sold at public auction for $11,400 per acre. The farm consisted of 118 +/- tillable acres with a CSR2 of 69.7, and equaled $166/CSR2 point on the tillable acres.

SOUTHEAST

Keokuk County:

80 +/- acres, located west of Keswick, recently sold for $13,600 per acre. The farm consisted of 77 +/- tillable acres with a CSR2 of 81.8, and equaled $173/CSR2 point on the tillable acres.

Hertz Real Estate Services compiled this list, but not all sales were handled by Hertz. Call Hertz at 515-382-1500/800-593-5263 or visit www.Hertz.ag.