Central Plains Bankers Note Softening in Farmland Values

Farmland values across the Central Plains moved higher in 2022, according to the Federal Reserve Bank of Kansas City. However, the sudden rise in interest rates tempered gains, resulting in declines in values when looking at the fourth quarter of 2022 versus the previous quarter. But the early gains posted in the first part of the year still result in an overall boost in farmland values when compared to a year ago. Officially, the bank reports nonirrigated farmland values rose 9% on the year when compared to 2021.

The Bank notes average interest rates on farm loans increased from record lows at the beginning of the year to decade highs by December. Average interest rates on all types of loans were more than 100 basis points higher than the previous quarter, marking the third consecutive quarter of sharp rate hikes. Interest rates on farm loans reached their highest levels since 2007.

Farmland values continued to increase in 2022 despite the rapid rise in interest rates but showed further signs of softening. The value of nonirrigated farmland increased about 9% from the previous year, which is the slowest pace since early 2021. While most respondents continued to report additional increases in land values, about a quarter of bankers indicated that the average value of nonirrigated farmland was at least slightly less than a year ago.

                         Farmland values ease versus first quarter but higher on the year

Cash rents also continued to increase and showed less pronounced signs of softening than farmland values. Rental rates on all types of farmland increased about 12% from the previous year, which was a pace similar to previous quarters. While farmland values rose rapidly earlier in 2022 and then cooled, rents continued to rise more steadily through the fourth quarter.

                         Cash  rents trend higher

Signs of softening growth in farm real estate values and cash rents was most pronounced for the lowest value land in the fourth quarter. The lowest priced farmland lost almost 5% in value compared to the previous quarter, while the highest priced farmland remained nearly unchanged. Similarly, the highest cash rents grew by more than 10% over the quarter while the lowest rents declined by about 4%.

                     Declines noted in lower value farmland