April 24, 2024 - Written By Geswein Farm and Land - Kristen A. Schmitt
What’s the Ag Economic Forecast?
Agricultural economics can impact land values and crop prices, making it critical that farmers and landowners stay on top of current and future trends. With roots in up-to-date research and an ability to unpack the information for the masses, Agricultural Economic Insights (AEI) plays an important role in understanding and future-proofing farming communities across the country.
“We like to say that we don’t provide breaking news, but that we break down the news,” says David Widmar, an agricultural economist and co-founder of AEI.
What began as a way to bridge the gap between current research and decisionmakers has evolved to a platform for farmers, agricultural lenders, landowner and rural communities as a whole.
“We focus on things that are happening in the U.S. farm economy as well as global trends and the implications for farm level decision making,” says Widmar who tailors content and data towards farmers and landowners but understands that it’s often those who sit across the table from farmers and landowners who also need the same level of knowledge.
AEI offers weekly insights into issues affecting farmers and landowners by utilizing an economic lens to dial in on uncertainties and identify key trends. Widmar acknowledges that a lot of forecasting really relies on what can be learned from history in order to make better decisions within the economic framework. One way AEI delivers these lessons is through its podcast, AEI.ag Presents, now on its third season.
“In our podcast, we try to cover a big topic and we move through several experts to help us tell that story,” says Widmar.
The latest season? It’s all about interest rates and the impacts they’ll have on the broad economy – the U.S. economy – both on an individual and farm level.
Ag Trends Today and in the Near Future
Widmar got his start in ag economics on the family farm in southeast Kansas. Tasked with updating family crop budgets, he had his first taste of the level of decision making necessary to make a farm run smoothly. After graduating with a master’s of science degree from Purdue University, Widmar worked as a researcher with Purdue’s Department of Agricultural Economics before serving as the economist for the Kansas Department of Agriculture. Today, he uses his background and experience to help landowners and farmers make better decisions for their land today and into the near future.
What’s Widmar’s advice for farmers and landowners right now? Pay attention to interest rates.
“Interest rates impact our daily lives,” says Widmar, pointing out that rising interest means it will cost more to borrow money, which then impacts how much house an individual can afford or, in this case, how much farmland someone can buy.
However, it’s not only about interest rates; there’s also asset values to keep in mind. An increase in interest rates will have a direct impact on asset values and, between 2010 and 2022, interest rates have remained incredibly low.
“We were on this plateau of really low interest rates,” says Widmar. “Almost to zero at the individual level, which is very favorable for farmland values because this low interest rate really helps asset values because they push asset values up.”
Yet, over the last year, the federal government has slowly been raising interest rates and Widmar cautions that farmers and landowners have yet to see the impact. It hasn’t trickled that far in the agricultural economy yet.
“The elephant in the room is this interest rate story,” says Widmar. “And that elephant has been working its way into the room since the 1980s.”
While older generations may be more cognizant of the 1980s farm crisis, Widmar notes that first-generation farmers or those too young to have experienced it first-hand need to grasp the significance of it. It was a perfect storm that hit American farmers in a way that hadn’t occurred since the Great Depression. Land and commodity price booms and busts along with mountains of debt and failed federal policy all added to the economic catastrophe.
“Interest rates aren’t the only thing that impacts farmland value,” continues Widmar. “The other big driver is income and we’ve seen a farm income boom since 2000.”
In fact, the last three years are the best three-year stretch in farm income since WWII. The farmland market between 2020 and 2022 was a period of extremely low interest rates – rates that were low pre-pandemic and were pushed even lower after the pandemic – coupled with a farm income boom, which have resulted in extremely favorable farmland values. In agricultural financial jargon, interest rates are transitioning from tailwinds (increasing speed and going forward) to headwinds, which do the exact opposite by slowing things down.
“We have a gas pedal rally going on,” says Widmar. “It’s really hard to determine the net impact so we’re watching the data really carefully.”
Right now, there are low interest rates, declining interest rates and strong farm income, which is good for farmland buyers, notes Widmar. However, in the past – and if history tells the full story of what could come – there was declining farm income and really high interest rates, which resulted in a major farm crisis.
Widmar’s depiction of the general landscape within current agricultural economic trends is still evolving and may continue to do so over the next few years as interest rates continue to drop and the reverberations enter new industries and markets. For now, it’s a waiting game to see how much impact will hit farmland value.
“It takes time for these things to work their way into the economy,” says Widmar. “It’s not an instantaneous thing.
“The question we need to ask is how long will the federal government continue to raise interest rates? And right now, that’s a wide-open guess, but it’s one that decisionmakers, farmland owners and farmland investors have got to think about, recognize the uncertainty and the size of the opportunity ahead of them and then make the best decision they can.”