The recent falloff of commodity prices, combined with potential for rising interest rates, could trigger a decline in agricultural land prices.
Southwest Farm Press reports low interest rates have provided support to rising land prices over the past 20 years. Farmland rents in Texas have not kept pace with higher land prices largely because a falling interest rate environment provides little justification for high returns. However, the low interest rate environment is likely to change. Other commentators have made similar arguments about the Corn Belt and many have suggested that a bubble in land is beginning to burst.
America’s central bank, The Federal Reserve, is scheduled in October to end its bond buying program, known as quantitative easing. If it pushes rates higher or if price inflation puts a premium on current rates, the rates landowners pay to finance land purchases and farmers and ranchers use to finance their operations will climb in the future.
Due to low commodity price environment, farmers and ranchers may be forced to roll over operating loan debt to the following year, making rising rates a more serious issue. A rising rate environment could create farmland rents to increase or farmland prices to fall.