Despite gradual deterioration in farm financial conditions over the past year, agricultural real estate values in the Tenth Federal Reserve District remained strong in 2025, reports the Kansas City Federal Reserve Bank.
According to survey respondents, farm income declined at a pace similar to the past year and liquidity was tight for a large share of borrowers. Despite softer farm finances, the value of cropland in the region was nearly unchanged from a year ago and ranchland values increased modestly. Land markets were stable alongside steady sales volume and firm demand and strong valuations continued to provide support for the sector, the bank states.
The outlook for the U.S. farm economy remained subdued alongside weakness in the crop sector, but aggregate farm financial stress remained limited, the bank observes. Demand for farm loans has grown alongside tighter working capital, elevated production costs and a surge in cattle prices. Direct government payments and resilient farm real estate values have eased some of the strain from weak profitability for crop producers and strength in the cattle sector has lifted incomes in many areas. Farm loan delinquency rates have remained low despite increasing slightly in recent months but persistent weakness in the crop sector could weigh further on agricultural credit conditions, the bank states.
The pace of decline in farm borrower income and liquidity in the Tenth District was similar to the previous year. The share of lenders reporting lower farm income than the same time a year ago dropped slightly compared with last year in all states except Oklahoma and the Mountain states.
A sizeable portion of farm borrowers had liquidity positions that signal modest financial challenges, the bank notes. On average, lenders in the region reported about 45% of farm borrowers had current ratios below 1.5. Liquidity has tightened alongside compressed margins among row crop producers, but current ratios also remained strong for a portion of borrowers.
Tighter farm finances continued to weigh on credit conditions, but the pace of deterioration decelerated in the fourth quarter, the bank notes. The pace of decline in farm loan repayment rates slowed following several quarters of gradually faster deterioration. The share of lenders reporting a lower loan repayment than the same time a year ago dropped considerably in all states except Oklahoma and the Mountain States.
Farm loan demand remained strong through the end of the year alongside reduced liquidity, the bank states. Demand for non-real estate farm loans in the region increased at the fastest pace in about ten years. The share of lenders reporting demand was higher than the same time a year ago increased considerably in Missouri and Oklahoma.
The value of irrigated and non-irrigated cropland in the region changed by about 1% from a year ago. Ranchland values increased modestly over the past year alongside strength in the cattle sector and reached record levels. While cropland values remained broadly stable across the district, strength in the cattle sector likely supported values in some areas. Cropland and ranchland values increased comparatively more in Oklahoma and the Mountain states where farm revenues are more dependent on cattle. In more crop-intensive states like Kansas, Missouri and Nebraska, cropland values declined slightly.
The volume of farmland sales and overall demand were steady despite a slight retreat in farmer demand alongside tighter farm financial conditions. According to lenders, sales volumes were generally stable compared with last year and overall demand was also similar. Farmers remained the primary buyers, but the share of land they purchased declined to slightly less than 75%, on average, which was the lowest level since 2011.
Demand for farmland was steady or slightly higher in most states while sales volumes declined in some areas. Responses from lenders indicated unchanged or slightly higher demand for land in all states. The volume of transactions was notably lower than the previous year in Oklahoma while sales were notably higher in Missouri.
Cash rents for cropland declined slightly in the fourth quarter while ranchland rents increased. Rental rates on irrigated and nonirrgated cropland decreased about 3% and 2% from a year ago, respectively. Similar to ranchland values, cash rents for grazing increased about 3%.