Historically low interest rates that followed the 2007-08 financial collapse have had a positive effect on U.S. net farm income and the price of farmland — but when interest rates move higher will that push income and land prices downward?

For some farmers, maybe, says Brian Briggeman, associate professor and director of the Arthur Capper Cooperative Center at Kansas State University.

But comparing present day scenarios to farmland “bubbles” of the past, there is a difference in the debt picture of many farmers, the former economist for the Federal Reserve Bank of Kansas City said at the Mississippi Farm Bureau Federation’s joint soybean, corn, wheat, and feed grains advisory committee meeting at Grenada, Miss.

“These very low interest rates have been the primary driver of net farm income, and they are certainly an important factor when looking at agriculture as an investment, the price of farmland, and the effect on the value of the dollar and exchange rates by making our goods more affordable in the global marketplace.

“Interest rates have two important impacts on farmland values — they affect expected farm income and capitalization rates, which have an impact on farmland values.”

The current low to negative rates tend to push up farm income, Briggeman says, and have helped to support farmland values by lowering the opportunity cost of capital, so investors are now looking at farmland as a very appealing investment.

“If I can buy farm ground and get a 4 percent to 5 percent rate of return, that sounds good in comparison to other investment opportunities. Low capitalization rates have helped support farmland, and overall demand has risen.”

Interest rates are expected to be low going forward to 2015, he says.

“When the price of money is basically zero, and investors are trying to reach for yield and a potentially a safe return, agriculture is a natural place to look. History has shown that periods of exceptionally low interest rates benefit agriculture by helping to support prices through lower exchange rates, making our goods more affordable, and pulling up net farm incomes.

“If we look back through these commercial paper rates, adjusted for inflation, going back to 1910, we see periods when there was a dip into negative territory, when the real price in financial markets was negative. If we overlay that with a net farm income chart, we see real net farm income really spike. We’re in that kind of period right now, where we have negative real interest rates and net farm incomes are very strong.”