Farmland values hit high despite inflation, interest rates
by ISU Extension and Outreach
January 30, 2023

By Wendong Zhang and Nathan Cook–Iowa State University Extension and Outreach

AMES, Iowa – One year after skyrocketing 29%, the average value of an acre of Iowa farmland jumped another 17%, or $1,660, to $11,411 per acre. The nominal value of an acre of farmland is again higher this year than at any point since Iowa State University began surveying values in 1941. When adjusting for inflation, the 2022 average value surpasses the previous inflation-adjusted record value set in 2013 for the first time.

While inflation was a major factor that drove the increase last year, Wendong Zhang, an associate professor of economics and faculty affiliate of Center for Agricultural and Rural Development at Iowa State University, said that it did not play as much of a factor as commodity prices, limited land supply, and low interest rates through summer 2022 did this year.

Zhang, who is responsible for conducting the annual survey, said that inflation rates this year are similar to those from last year, but the Federal Reserve has used aggressive rate hikes since this summer to curb the problem.

While the Federal Reserve has been raising interest rates, Zhang said that 81% of Iowa farmland is fully paid for, so the higher interest rates don’t always affect farmers’ land purchasing decisions. This is especially true when high inflation makes the real interest rates negative or low, which tends to incentivize more borrowing and investment. “Farmers have a lot more cash on hand and supply chain issues led to a shortage of equipment, so the money that farmers normally spend on equipment is now devoted to land,” he said. As for commodity prices, Zhang said they have been strong this year and yields have been higher than expected.

Chart courtesy Iowa State University Extension and Outreach.

Factors influencing the land market

The most frequently mentioned positive factor influencing the land market was higher commodity prices. Limited land supply and low interest rates through summer 2022 were the second- and third-most frequently mentioned factors. Other frequently mentioned factors included cash on hand and high credit availability, strong yields, a good farm economy and strong demand.

The most frequently mentioned negative factor affecting land values was interest rate hikes. Other noted factors included concerns about higher input costs, and stock market volatility and economic uncertainty were the second- and third-most frequently mentioned negative factors.

Land values were determined by the 2022 Iowa State University Land Value Survey, conducted in November by the Center for Agricultural and Rural Development at Iowa State and Iowa State University Extension and Outreach. Results from the survey are consistent with results by the Federal Reserve Bank of Chicago, the REALTORS Land Institute, and the U.S. Department of Agriculture.

The Iowa State Land Value Survey is based on reports by agricultural professionals knowledgeable of land market conditions and is intended to provide information on general land value trends, geographical land price relationships, and factors influencing the Iowa land market. The 2022 survey is based on 668 usable responses from 443 agricultural professionals.

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