Agricultural real estate values in the Central Plains and Mountain States declined slightly in the first quarter of 2025, reports the Federal Reserve Bank of Kansas City. In addition to the slight setback in values, the bank notes credit conditions deteriorated further. The bank services Kansas, western Missouri, Nebraska, Oklahoma and the Mountain States of Colorado, northern New Mexico and Wyoming.
According to its quarterly survey of ag lenders, the average value of nonirrigated farmland declined about 2% from a year ago. Land market conditions varied in some states, but in aggregate, values declined slightly following a moderation in farm incomes over the past year.
Alongside subdued economic conditions, farm loan repayment rates declined, demand for financing grew and instances of carryover debt and loan restructuring increased notably from a year ago. Deterioration in farm finances was most pronounced in areas more dependent on crop revenues while strong cattle prices continued to support conditions in some parts of the region.
Farm real estate values in the bank’s district declined slightly in early 2025, the bank states. According to survey respondents, the value of nonirrigated farmland was about 2% less than a year ago in the first quarter and irrigated land values declined about 4%. The value of ranchland was about 1% higher and cash rents on all types of land were unchanged. As noted in previous surveys, the banks says changes in land values varied across states and types of land. The value of nonirrigated land declined slightly in Kansas, Missouri and Nebraska but increased modestly in Oklahoma and the Mountain States. All land types were at least 5% less in Nebraska while values in Oklahoma increased for all types.
Farmland markets softened alongside further moderation in the farm economy over the past year, but valuations remained strong, the bank notes. The value of nonirrigated farmland eased modestly from record highs following two consecutive years of declines in U.S. net farm income. Despite some weakness, average farmland values remain more than 50% higher than in 2020 and 165% higher than in 2010. Over those same time periods, cash rents increased only 30% and 60% from 2020 and 2010, respectively.
With gradual depletion of farm borrower liquidity due to declining incomes, non-real estate farm loan demand continued to grow steadily, the survey reports. The pace of increase in loan demand was also similar to recent quarters. The share of lenders reporting that loan demand was higher than the previous year was comparable to last year in most states but increased notably in Nebraska.
Farm loan repayment also weakened further alongside subdued farm incomes. The pace of decline in farm loan repayment rates was faster than previous quarters as the share of banks reporting lower rates of repayment increased throughout the region. In nearly all states, the share reporting that loan repayment rates were lower than a year ago was twice as high as this time last year. Like farm income, loan repayment rates deteriorated comparatively less in states with higher reliance on cattle production.
As repayment rates slowed, loan extensions increased, and some lenders tightened credit standards. The pace of increase in renewal and extension activity was similar to the previous quarter, continuing to rise steadily. Similar to loan repayment rates, the share of lenders reporting increased collateral requirements doubled throughout the district, the bank notes.
Cases of restructuring also increased alongside carryover debt, but loan denials remained limited for most lenders, the survey reports. The average share of farm loans in the region requiring restructuring to support liquidity needs increased to more than 10% from about 5% a year ago. Despite signs of tighter financial conditions, the average share of loans denied due to cash flow shortages or collateral shortfalls remained near 2% in all states except Missouri.
Most producers remain highly solvent, the bank notes, but a sizeable share of farm borrowers are also highly leveraged. According to respondents, about three quarters of all farm borrowers, on average, have debt-to-asset ratios below 0.40 and a quarter have ratios below 0.20. Another quarter of borrowers, however, have ratios above 0.40 and are more exposed to financial stress and challenges with loan repayment.