Examining agriculture's future

January 16, 2025 | Jeff Hutton

Ag land prices may moderate a bit over the next few years, interest rate numbers are part of the “new normal” and being informed about one’s own farming operation is critical.

That was part of the discussion during this week’s Land Investment Expo in Des Moines. The Iowa Soybean Association was one of several sponsors of the event.

Farmers, landowners and investors gathered to hear from experts about what’s going on in the market and how that could impact all those who have a personal stake in the ground below us.

Land values

Jim Knuth, senior vice president for Farm Credit Services of America, outlined what farmers might think about as we enter 2025.

“If you look at land values, those numbers have declined modestly,” he says.

Knuth pointed out that record land prices were cited in 2023. Only in the last six months of 2024 have those numbers dropped slightly.

“We’re still close to those all-time highs,” he says. “As we sit here today, in January 2025, we’re still well above the peak of the ethanol boom (in 2012-13).”

He says land sellers are still seeking out the highest bidders to maximize land value, be it for farm production or not.

Knuth says financing farm ground means approaching purchasing with a sustainable debt philosophy.

“Land payments are long-term decisions, driven by long-term economics – it has to be sustainable,” he says. “It’s also Economics 101 – lower supply typically means higher prices.”

And with “higher” interest rates, lower commodity prices, depressed margins, land remains the most valuable asset in agriculture.

Interest rates

Interest rates prior to 2022, Knuth says was really an anomaly.

He pointed out that over three years, interest rates trekked up by 4.25%: “That’s the steepest rise we had seen in the past 30 years.”

By July 2023, Knuth noted that rates went up another 1% hitting 8.5%. In September 2024, rates dropped to 7.5% - the current figure in January of 2025.

“As we think about interest rates today, we need to realize that interest rates are back to ‘normal,’” he says. “Those ultra-low interest rates that started with the financial crisis (in 2008-09), that was an outlier. That’s not normal.”

Knuth says he does not see long-term rates trending down, as the Federal Reserve remains hawkish on inflation.

“Rates may decline moderately, but at the end of the day the current interest rate environment will continue,” he says.

Grain Production

Knuth says with the continued high land values, interest rates hovering between 6-8% and lower commodity prices, there’s no question there are challenges farmers will be facing in 2025.

And making grain production decisions even more difficult is what’s going on in South America.

“One of the biggest factors is the South American harvest, which is expecting a large crop starting this month,” Knuth says.

From a global perspective, he noted that over the past 10 years, South America has taken away a chunk of the corn market from the United States; and with soybeans, the U.S. numbers went from 40% in 2014 to 27% in 2024.

“What happens in South America impacts the United States,” Knuth says. “Chinese imports are aligning with Brazil.”

With that, and concerns over tariff threats from the upcoming Trump administration, Knuth says it’s critical to note that domestic demand is becoming more important to producers, as well as finding other international trading partners.

Despite the gloom and doom, Knuth says the good news for grain production is that there are record levels of working capital available to producers.

“Given the current environment, that’s good news,” he says. “And during the first quarter of 2025, economic loss assistance programs are expected to generate about $850 million for Iowa producers, which grows working capital figures.”

Knuth also says other than real estate, farmers must also focus their attention on machinery, equipment and vehicles.

Aside from land values, equipment is something that needs to be addressed.

“This may be a time to consider leasing equipment or entering into equipment sharing agreements with non-relative neighbors,” Knuth says, adding that some farmers may want to do more custom farming to generate revenue to offset equipment costs.

And while there was some optimism expressed following last week’s WASDE report, Knuth says a new Trump administration, possible tariffs and the uncertainty of China, means grain production is a “real wild card.”

Food For Thought

Knuth says in 2025 and for the foreseeable future, farmers must understand the current environment is our new normal – inflated costs, depressed margins and a sticky inflationary environment.

“If you think of all this as your ‘new normal,’ it will help with your business planning,” he says.

Knuth added that understanding one’s risk management and crop insurance options are also important considerations.

“Don’t close your eyes and go ‘I’m just going to do what I did last year and year before,’” he says. “You’ve got to make informed decisions and understand how to put an appropriate safety net underneath your operation.”

He re-emphasized the importance of working capital and said farmers must understand how to preserve it and enhance it.

“Finally, grain production agriculture has adjusted to the realities of its revenue stream 100% of the time and it will again,” Knuth says. “Our best advice, prepare for the new normal.”

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