10 August 2022, US: Since 2020, U.S. farmland values have been increasing thanks to rising grain prices and low interest rates. According to the USDA’s recent Agricultural Land Values report, farmland values gained 12.4% in 2022 and are up a combined 20.2% over the past two years of bullish grain prices. (1)
Yet ominous warning signs surround us in today’s uncertain economic environment.
Will recent market turbulence impact farmland values?
The U.S. economy is heading for turbulent times as stock prices swing, swelling housing prices reverse course, and 40-year high inflation forces the U.S. Federal Reserve to aggressively increase interest rates. The last time inflation was this high back in the 1980s (2), U.S. farm bankruptcies were widespread and farmland values plummeted.
Fortunately, while farmland as an asset class is also influenced by interest rates, it often has less connectivity to broader economic signals and can therefore be somewhat insulated from the stiff headwinds plaguing the U.S. economy. Recent data from the USDA shows U.S. farmland values actually increased 12.4% between June 2021 and June 2022, but the future of such values still remains uncertain.
As clouds loom over the U.S. economy, will they cast a shadow on the future of farmland’s impressive value growth to this point?
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