Will the Soaring Farmland Market Drop When the Federal Reserve Raises Interest Rates?

Abstract

The Iowa and Midwest farmland markets have seen tremendous momentum over the past 18 months. Both the Iowa Land Value Survey and the Chicago Federal Reserve Bank’s AgLetter show that average farmland values in Iowa rose 30% last year to the highest nominal values since the 1940s (Zhang 2021; Oppedahl 2022). At the same time, concerns about the sustainability of high land prices and possible changes in interest rates were the second- and third-most frequently mentioned negative factors in the 2021 Iowa Land Value Survey. In late March, the Federal Reserve Bank is expected to impose the first interest rate hike in three years, which will likely be the start of six-to-seven interest rate hikes over the next two years. This article examines the potential impacts of the future interest rate hikes on the farmland market.