August 9, 2024 - Written By Geswein Farm & Land
Farmland Values During Election Years
How Election Years Impact Farmland Values: A Historical Perspective
During election years, land values can be influenced by various factors related to political uncertainty and policy changes. When looking at the average rate of return from income returns and land appreciation, there is a general trend of resilience and strong performance in farmland investment during election cycles. In this article we take a closer look at the factors affecting farmland values and give you insights from leading agricultural economists. Here are some of the key points farmland owners & investors should consider:
Location. Location. Location.
The impact of election years on land values can vary significantly by region. Farmland can vary by county, and even maintain swings in the price per acre across a single county. Areas that are heavily dependent on agriculture may see different trends compared to regions where other economic activities dominate.
Market Uncertainty
Election years often bring uncertainty to the market as potential policy changes could affect agricultural subsidies, tax laws, and environmental regulations. This uncertainty can cause fluctuations in land values as buyers and sellers may become more cautious. Many local markets remain resilient, flat, and increase during election years, while others may shift in a downward direction.
Policy Expectations
The expected policies of leading candidates can influence land values. For example, if a candidate is expected to introduce policies that favor agriculture, such as increased subsidies or tax breaks, land values may rise. Conversely, policies perceived as harmful to farming in general may negatively impact farmland values.
Interest Rates
Elections can impact the broader economic outlook, including interest rates. Central banks may adjust interest rates in response to economic policies proposed by candidates, which in turn can affect the cost of borrowing for land purchases. Lower interest rates generally make land more affordable, potentially increasing its value.
Historical Trends
David Widmar is an agricultural economist specializing in ag trends and the farm economy. Through his research, he supports agribusinesses and farmers in their strategic and planning efforts. David’s current work can be found at Agricultural Economic Insights, aei.ag, which he co-founded with Dr. Brent Gloy in 2014. Prior to Agricultural Economic Insights, Mr. Widmar was a researcher with the Department of Agricultural Economics at Purdue University, and served as the economist for the Kansas Department of Agriculture. David received his master’s of science degree from Purdue University, and a bachelor’s of science from Kansas State University, both in agricultural economics.
Looking at historical data, land values during election years can show varying trends. In some cases, land values have increased due to optimistic market sentiment, while in other cases, they have decreased due to heightened uncertainty.
David Widmar, a leading agricultural economist and Co-Founder of AEI.ag is widely known for his research and data-driven insights on the state of agriculture. AEI provides timely, in-depth analysis about key agricultural economy trends that are impacting the farm economy. Recently Mr. Widmar shared with us his perspective on landowner and investor considerations during election years.
“Farmland’s historic appeal has come from annual income – such as the cash rents received – and changes in the farmland’s underlying value. When farm incomes are strong, producers and investors feel confident to bid those rents and values higher. This year, a major political reality of the 2024 election cycle is that major tax legislation will be sunsetting in 2025 – including the current exemption limits on inheritance taxes. How the next Congress and President approach those issues will be important to monitor. That said, farmers and investors with long investment horizons – perhaps measured in generations – will continue to focus on farmland’s annual income and long-term appreciation potential. For long-term investors, their investment timeline often exceeds the proposed tax policies, the current macro-economic cycle, and current farm economy slowdown.”
Market Sentiment
The overall sentiment in the agricultural market can shift during an election year. Factors such as trade policies, rural development programs, and investment in infrastructure can influence how investors and farmers perceive the future value of farmland. The Purdue University “Ag Barometer” measures and tracks sentiment in Indiana and can be great resource.
Case Studies and Data
Reviewing specific case studies and data from previous election years can provide insights into how land values have been affected historically. This data can help forecast potential trends for current and future election years.
The chart below is displaying the average rate of return on farmland during the last 10 election years, based on actual data.
The returns in the chart reflect both land appreciation and income returns, showing a general trend of resilience and strong performance in farmland investments during these periods.
The data in this chart was sourced from reports by AEI.ag, AcreTrader and the National Council of Real Estate Investment Fiduciaries (NCREIF), which track farmland returns over time, including election years (AcreTrader) (aei).
Expert Analysis
Consulting with farmland advisors, economists, and real estate experts can provide a more detailed understanding of how current election dynamics might impact your local farmland values. These professionals can offer insights based on a combination of historical data and current market conditions.
In Summary
Election years introduce a unique set of variables that can influence land values. By analyzing historical trends, policy expectations, interest rates, market sentiment, and regional differences, one can gain a clearer picture of how land values might be affected. For personalized advice, consulting with experts in farmland economics and sales or investment is highly recommended.
Additional Resources for historical trends in return on investment of farmland real estate can be found at:
- USDA Reports: The USDA often publishes reports that can provide insights into how election years have historically impacted agricultural markets and land values.
- Federal Reserve: Information on interest rate changes and economic outlook during election years can be found in reports from the Federal Reserve.
- Real Estate Journals: Publications such as the Land Report and Farm Journal provide analysis and case studies on land value trends during election years.