Farmland values in the Central and Southern Plains held steady in the fourth quarter of 2018 despite risks to ongoing stability, reports the Federal Reserve Bank of Kansas City. While demand for farmland remained relatively strong across the bank's district, weaknesses in the crop sector continued to dampen the overall agricultural economy. Risks to the outlook for farmland values in the quarter included slightly higher interest rates and an uptick in the pace of farmland sales in states with higher concentrations of crop production. In addition, continued deterioration in farm finances and credit conditions could put further pressure on values for farm real estate. Looking into 2019, bankers’ expectations for farmland values were slightly weaker than a year ago, the bank states.
Declines in the value of nonirrigated and irrigated cropland remained modest across the district, the bank notes, and declined only 3% from last year. On average, cropland values also declined at a slower pace in 2018 than in the previous two years. Ranchland values increased slightly for the second quarter in a row, the first consecutive increase in farmland values since 2015.
Trends in Farmland Values
Farmland values were more stable in states more concentrated in livestock and energy production, the bank observes. Although irrigated cropland values declined at a faster pace in the Mountain States and Oklahoma, nonirrigated cropland was relatively unchanged while ranchland values increased more than 3%. Furthermore, most of the strength in ranchland values across the district was driven by developments in the Mountain States and Oklahoma, states with higher concentrations of cattle production. Bankers in these states also commented that farmland values have been supported by an uptick in activity in the energy sector.
Trends in Farmland Values by Region
The bank says demand for real estate remained strong in the farm sector, which could be supporting farmland values. Although the share of farmland purchased by farmers has trended lower since 2014, the decline has remained modest. In 2018, farmers remained the primary buyers of farmland and accounted for more than 75% of purchases.
Alongside higher interest rates, expectations for farmland values continued to wane, the bank notes. Compared with last year, a larger share of bankers indicated in the fourth quarter that they expect modest declines in nonirrigated cropland values in 2019. Although some bankers still expected farmland values to increase slightly in 2019, 61% of respondents expected farmland values to decline, while 32% expected values to remain unchanged.