Northern Plains Bankers Note 7% Gain in Cropland Values
Despite declining farm incomes, farmland values Minnesota and Northern Plains continued to rise during the third quarter of 2023, according to the Federal Reserve Bank of Minneapolis. The upswing continues the pattern seen the past few years.
The value of nonirrigated cropland values increased by 7.2% on average from the third quarter of 2022, reports the Bank’s Joe Mahone who conducts the quarterly survey. Values for irrigated land increased by 12.8%, while ranchland and pastureland values rose almost 2.1%. He says several respondents noted pressures behind rising farmland prices, such as out-of-state hunters looking for recreational land as well as domestic and international investors purchasing property. These pressures have “driven up the price of ag land making it next to impossible for the next generation to purchase or even lease land to farm or raise livestock,” relates a Montana banker. “More and more is taken out of production as well.”
Land rents followed suit, as the district average cash rent for nonirrigated land increased by 4.2% from a year ago. Rents for irrigated land grew 8%, while ranchland rents jumped 10.9%, he notes.
Though incomes fell on balance, the decline was not uniform, he states. Districtwide, 46% of agricultural bankers surveyed say incomes decreased in the third quarter from a year earlier, up from 35% the prior quarter. More than a third of respondents indicate spending by farm households increased, while slightly more than half report no change. Capital spending also dropped: 35% of respondents report decreased investment in equipment and buildings from a year ago, compared with 21% who reported increased spending.
Despite the decline in incomes, demand for loans has remained relatively low. Demand for loans hardly changed on balance from the low level prevailing over the past several years, according to Mahone, as 52% report no change to loan demand relative to a year ago. By contrast, 25% note greater loan demand and 23% say it was lower. Collateral requirements on loans were also unchanged according to 85% of lenders surveyed, though the remainder reported increases in collateral requirements.
