The latest farmland survey by the Iowa State University Extension department showed a third straight year where land values dropped. Some people are worried the quarter-point increase in the interest rate announced Wednesday by the Federal Reserve could hurt land values even more. Economist Wendong Zhang conducts the I-S-U survey and says interest rates are an important part of land values. “Land value can be thought of simply as net income divided by interest rates. So when interest rates rise, land values tend to fall down,” Zhang says.

But Zhang says this increase shouldn’t have much impact. “What we are talking about will be a shift from an historically low environment to a low interest rate environment. So, it will have some impact, but probably not as much as some people are worried about,” He says.

The use of ethanol and its impact on corn prices led to an increase in farm land prices that saw them peak in 2013. But Zhang says the impact of ethanol on land prices is not as strong as it once was. “Comparing the current and future growth to what we experienced in the late 2000’s, the growth is much slower,” Zhang says. “Back in the 2000’s ethanol had been one of the primary factors in driving up the corn prices. I don’t think the factor is that strong (now) — at least compared to a few years ago.”

Zhang expects the drop in land prices to slow and eventually turn around, but he says it could take a few years.

(Radio Iowa)