How Interest Rates Could Impact Farmland Values in 2024
Lately, the news has been full of talk about interest rates. The Federal Reserve’s recent decision to hold interest rates steady at 5.25% to 5.5% comes as a beacon of stability. It signals that perhaps we are approaching the corner on inflation.
But now that we’re sitting on high interest rates, what does that mean for the farmland market? Since the onset of rate hikes in March 2022, we’ve seen the landscape of borrowing and investing undergo significant shifts, with the Fed’s actions rippling across various sectors, including agriculture.
According to Ty Kreitman of the Federal Reserve Bank of Kansas City, there’s a growing concern that higher interest rates, coupled with a moderation in agricultural commodity prices, could lead to a dampening of demand for farmland, and consequently, a potential decrease in farmland values.
Read the Full Story by Michael Lauher, AFM
Landowners Push Back Against Pipelines
The pipeline runs right through Kenny Davis’ modest Scott County, Illinois, farm, where he had planned to build a home for him and his wife once he retired from working as an electrical lineman. Davis’ retirement came in 2020, but the new house never did.
“I can’t do that now,” he said. “I’ve got a pipeline right here.”
He points out a roughly 30 foot wide clearing straight through the surrounding forest where the natural gas pipeline runs underneath.
“I didn’t want that gap,” Davis said. “It’s changed my whole outlook on this farm.”
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Leasing vs. Owning: Foreign Investment in U.S. Ag Land
We have written previously about foreign investment in U.S. ag land. That article stated that there is currently no federal law that prohibits the ownership of private agricultural land by foreign persons or entities.
The federal government’s only involvement is monitoring land acquisitions and recording information on those purchases through the passage of the Agricultural Foreign Investment Disclosure Act of 1978 (AFIDA). Under AFIDA, qualifying foreign entities who buy or sell an interest in agricultural land are required to report the transaction within 90 days of acquiring the land or face a monetary penalty.
Foreign ownership or leasing of U.S. agricultural land increased by 2.4 million acres in 2020. However, that acreage represents a relatively small proportion of the overall base of U.S. farmland and timberland. The total amount of U.S. cropland, pasture, and forest with foreign ownership or leasing interest in 2020 was 37.6 million acres, which represents about 2.9% of all privately held U.S. agricultural land.
Read the Full Story by ASFMRA Academic VP Mykel Taylor, Ph.D., ASFMRA member Wendong Zhang, Ph.D., and Festus Attah
Weakened Commodity Prices Cast a Shadow on Farmer Sentiment
The most recent findings from the Purdue University/CME Group Ag Economy Barometer reveal a downturn in farmer sentiment at the start of 2024.
The January barometer fell to a reading of 106, 8 points lower than in December. Producers expressed a more pessimistic perspective about their farms’ current situation and future prospects. The Current Conditions Index fell 9 points, and the Future Expectations Index dropped by 7, both compared to December. The anticipation of weaker farm income in 2024 contributed to the overall decline, reflected in the Farm Financial Performance Index at 85, a 12-point decrease from the previous month. This month’s Ag Economy Barometer survey was conducted from Jan. 15-19.
“The number of producers pointing to lower commodity prices and lower farm income in 2024 significantly influenced the decline across all indices,” said James Mintert, the barometer’s principal investigator and director of Purdue University’s Center for Commercial Agriculture.
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For Sale: Ranch With Complete Old West Town, Only $3.7 million
A real estate listing in southern Colorado shows a property with all the charm of the Old West and all the New West's amenities. And it can all be yours for a paltry $3.7 million.
The 320-acre private ranch near Saguache, Colorado, (pronounced Sa-Watch) is bordered by Bureau of Land Management and National Forest land. The property includes two ponds, two creeks, three wells and surface irrigation and, according to its listing, “an abundance of wildlife such as elk, deer and antelope.”
The primary residence on the ranch is a three-bed, three-bath “luxury Ponderosa Lodge.” But, as any self-respecting cowboy with ambition would say, that ain’t big enough.
Also included on the property is an entire Old West town, complete with a saloon and restaurant, a general store, a chapel and a dance hall.
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ASFMRA Government Relations Update
House Agriculture Democrats Issue Principals Document
Last week House Agriculture Committee Ranking Member David Scott (D-GA) along with the ranking subcommittee chairs of the House Agriculture Committee issued a memo outlining seven principals for the next farm bill. The national agriculture press characterized the Democrat’s memo as hard lines in the sand as well as a negative response to Republican farm bill proposals. Careful reading of the memo could lead you to conclude otherwise. The Democrats appear to leave some room for negotiation on key topic areas, Supplemental Nutrition Assistance, and commodity and crop insurance support (support for farmers). The least flexible language from the memo is related to the Inflation Reduction Act funding for conservation and energy programs. The memo states that in both cases, Democrats do not support taking funding from its intended purpose. That does leave open the possibility of moving it into the farm bill baseline but seems to close the door on reprograming some of it for other purposes.
House Hearing Focus on Department of Interior Appraisals
The House Committee on Natural Resources held a hearing, which in part, touched on appraisal issues faced by the Department of Interior (DOI). Representative Lee (D-NV) introduced a bill , H.R. 5443, last year to facilitate DOI appraisals. Appraisal Institute President Adomatis testified at the hearing. Her written testimony can be found here.
USDA Forecasts Drop in Farm Income
The Economic Research Service (ERS) released updated farm income forecasts. According to the ERS farm sector income is forecast to continue to fall in 2024 after reaching record highs in 2022. In inflation-adjusted 2024 dollars, net farm income is forecast to decrease by $43.1 billion (27.1 percent) from 2023 to 2024, and net cash farm income is forecast to decrease by $42.2 billion (25.8 percent) compared with the previous year. If realized, both measures in 2024 would fall below their 2003-22 averages (in inflation-adjusted dollars).
The annual USDA Agriculture Outlook Conference will take place later this week and shed further light on commodity price and income forecasts from USDA experts.
CBO Releases Updated Baseline Estimates
Annually, the Congressional Budget Office (CBO) releases a preliminary budget baseline estimate with a final estimate sometime after the President’s Budget has been presented to Congress (usually in May). The CBO released its update for USDA farm and conservation programs as well as crop insurance spending (page 24) last week. Assuming the Agriculture Committees start to move a farm bill before May (possible, but increasingly unlikely), the Committees would use last year’s budget baseline to determine costs of changes to existing law. See previous baselines here.
If the Agriculture Committees are not able to move a farm bill soon, they would eventually be required to use the updated CBO baseline. The updated baseline has some interesting changes for commodity programs as well as for crop insurance. The updated baseline predicts lower spending over 10 years for PLC and ARC than the previous estimate. This would make increasing reference prices more costly. On the other hand, the updated baseline increases total spending under the Secretary’s CCC discretionary authority, which could increase savings if Congress limits the authority.
The new baseline’s biggest surprise, perhaps, is the over 20% increase in the cost of crop insurance (page 24) compared to the previous estimate. The update appears to increase insured acres significantly (by 30 million acres annually) which in turn increases premium and everything related to premium, premium discounts, delivery expense (A&O), as well as CBO’s estimate of underwriting gains. The lost ratio (LR) assumption did not change (.85 LR) in the budget years. Since A&O is increasing, one must assume the increased premium results from policies not subject to the A&O cap. Bottomline, crop insurance is a bigger target under the updated baseline.
USDA to Issue Final 2020 and 2021 ERP Payments
The Farm Service Agency (FSA) is issuing final Emergency Relief Program (ERP) payments totaling approximately $306 million to eligible commodity and specialty crop producers who incurred losses due to natural disasters in 2020 and 2021.
Recipients of the additional payment are limited to those producers who received ERP Phase One payments from FSA that were calculated based on crop insurance indemnities. Initially, ERP Phase One payments to producers who were indemnified through crop insurance, were subject to a 75% payment factor. FSA has since determined that adequate funding exists to provide an additional 3.5% ERP Phase One payment to producers who had crop insurance increasing the overall payment factor to 78.5%. These additional ERP Phase One payments are subject to FSA payment limitation provisions as outlined in the ERP Phase One fact sheet.
RMA Whole Farm and Micro Farm Agent Listing
The Risk Management Agency (RMA) released its first Manager’s Bulletin in 2024. MGR-24-001 creates a new voluntary listing of agents who wish to be specifically identified as willing to sell Whole Farm Revenue Protection and the Micro Farm plan of insurance. Agents who are interested have until February 12, 2024, to make the initial list which will be periodically updated by RMA through April 15, 2024. RMA has created a webform for agents who are interested to fill out.
RMA claims that farmers who wish to purchase WFRP and Micro Farm policies are contacting them and stating they can’t find agents, or they can’t find agents who are willing to sell these policies to them. When pressed on exactly where this is occurring the answers are not very forthcoming. RMA says it plans to continue to keep this separate agent locator list into the future.
House Passes Tax Package
The House passed H.R. 7024, the Tax Relief for American Families and Workers Act of 2024, by a vote of 357 to 70. The bipartisan bill was negotiated by House Ways and Means Committee Chairman Smith (R-MO) and Senate Finance Committee Chairman Wyden (D-OR).
The bill faces an uncertain future in the Senate as Senate Republicans are expressing a desire to amend the bill. But proponents are hopeful that the large favorable vote from the House will push it forward without amendments. The bill would devote about $33 billion to reviving a trio of business tax breaks (R&D, depreciation of new equipment and new construction of rental housing) and roughly the same amount to expand the child tax credit.
In Memory: Con A. Englehorn, ARA-Retired – Scottsdale, Arizona
The ASFMRA was honored and pleased to welcome Con into the membership on June 28, 1966. Con did not waste any time and he obtained his Accredited Rural Appraiser (ARA) designation on January 1, 1970. He maintained his Accredited membership until he transferred to the Retired membership classification on November 15, 2010. Con was very active with the ASFMRA and the Chapter. Con served as the ASFMRA President in 1980-1981. He volunteered his time and served on several committees – Bylaws from 1984 to 1986 and again from 1991 to 1992, Awards as a member from 1985 to 1988 and as the Chair in 1989, Appraisal Education/Accreditation from 1987 to 1988, Government Relations from 1993 to 1999, Program from 2010 to 2011, and Ethics from 2005 to 2016. The ASFMRA has learned that Con A. Englehorn, ARA-Retired passed away on February 3, 2024. Con made many contributions to the association and made many friends who will miss him greatly. Our thoughts and prayers go out to his wife, Joy, and his family.
In Memory: William "Bill" Northey – Des Moines, Iowa
We are saddened to acknowledge the passing of Bill Northey, a revered figure in the agricultural community whose influence extended far beyond the Midwest. While Bill was not an ASFMRA member, he generously shared his knowledge and experience with our membership on several occasions, leaving a lasting impact on the Society and its programs, most notably the Leadership Institute initiative.
Bill's dedication to agriculture was evident through his significant roles and contributions over the years, which included his notable service as President of the National Corn Growers Association in the 1990s. His leadership extended to his tenure as the Iowa Secretary of Agriculture from 2007 to 2018, where he championed soil conservation, water quality, renewable energy, agricultural trade and more. Bill was later appointed as the Undersecretary for Farm Production and Conservation at the USDA, serving from 2018 until 2021.
Bill will be profoundly missed for his admirable leadership and his unwavering dedication to the farming community. Our thoughts are with his family, friends and all who were inspired by his remarkable career and contributions to agriculture. You can read more about Bill's life here.