Farm real estate values remain strong

Farm real estate values continued to grow in the fourth quarter of last year but showed signs of easing amid higher interest rates, according to a Federal Reserve Bank of Kansas City report. 

Though farm income and liquidity increased from a year ago for the ninth straight quarter, the pace of growth was the slowest since finances deteriorated at the beginning of the pandemic. “The growth in farmland values has softened most for lower-priced land and in states most heavily affected by drought,” according to the report. Cash rents for lower-priced land fell by about 4 percent on a quarterly basis. Cash rents on the most expensive farmland increased by more than 10 percent. 

According to the report, average interest rates on farm loans soared from record lows at the start of 2022 to a 15-year high in the fourth quarter. Farmland rental rates increased by 12 percent from the previous year. Despite the increase, farm loan demand was generally unchanged from the previous year. 

“Following rapid growth in liquidity alongside a surge in deposits in recent years, availability of funds was less than a year ago for the first time since 2019,” the Kansas City Fed said. “Credit conditions continued to improve gradually alongside ongoing strength in farm income.”  

  According to the report, the outlook for farm finances and credit conditions remains positive for this year after being supported by strong commodity prices in 2022. Nearly 30 percent of bankers expect farmland values to fall in the coming year, the largest share since 2019. Thirty percent expect land values to increase, while a slight majority expect no change. 

The survey included 142 banks across the Tenth Federal Reserve District, including Colorado, Kansas, Nebraska, Oklahoma, Wyoming and parts of Missouri and New Mexico.