Plains Farmland Values Post 10% Gain
The surge in farm and ranchland values across the Central and Southern Plains continues but at a slower pace, according to the Federal Reserve Bank of Kansas City. “Strength in farm real estate markets eased, but farmland values continued to increase despite downward pressure from higher interest rates,” the bank notes.
Farm income moderated alongside a slight pullback in commodity prices during the first quarter slowing the pace of increase in loan repayment rates. While improvement in farm finances and credit conditions steadied and some lenders expect a degree of deterioration in the months ahead, multiple years of strong incomes continued to keep credit stress low, the bank reports.
The outlook for the U.S. farm economy for 2023 remained favorable as prices of key commodities were at multi-year highs. Elevated production expenses, higher interest rates and drought continue to present headwinds for many producers, but current commodity prices kept profit opportunities within reach. Higher production expenses pushed many producers to increase lines of credit, but others also pursued cost-cutting measures or utilized cash to reduce financing needs, dampening loan demand at many banks. Financial performance and liquidity at agricultural banks remained solid and farm lenders appeared well-positioned to meet higher credit demand through the early months of 2023.
While the pace slowed from the rapidly accelerating growth in early 2022, the value of agricultural land across the bank’s district increased about 10% from a year ago. Cash rents on farmland have increased alongside growth in land values but steadied quickly in the first quarter.
The outlook for land values and cash rents shifted considerably over the past year, the bank notes. Only about 20% of respondents expect an increase in nonirrigated farmland values in the coming months, compared with 50% who anticipated growth in values this same time a year ago. A similar path was expected for cash rental rates, with about 20% of banks expecting an increase in the next quarter.
The bank states the rise in farm real estate values slowed alongside a moderation in farm income. About 40% of respondents report income was higher than a year ago and 25% say income was lower. The prices of some key commodities have retracted from historically high levels in recent months and production costs remained elevated, putting downward pressure on profit margins and tempering the outlook for liquidity and farm income, the bank states.
Percent Annual Change in Farmland Values and Cash Rents
