Ag bankers in the Central and Southern Plains remain positive on the outlook for the farm economy despite the rise in interest rates and downturn in commodity prices. But the quarterly survey conducted by the Federal Reserve Bank of Kansas City finds bankers noting an easing in farm and ranchland values and rising concerns over drought in the western areas of the bank’s district.
The banks states: “Farm income and credit conditions remained solid (in the third quarter), but the pace of improvement softened. The financial impact of drought also intensified, particularly in the southern and western portions of the district. Despite recent headwinds, farm finances remained strong and continued to support sound agricultural loan performance.”
“The outlook for the agricultural economy generally has remained positive despite a recent pull back in prices of some key farm commodities,” the bank continues. “Volatility in crop markets, higher expenses and drought could hinder incomes for some producers, but prices of key crops and livestock remained at multi-year highs and profit opportunities across the farm sector remained favorable. The substantial improvement in farm finances and a surge in agricultural real estate values over the past two years have also bolstered balance sheets and continued to provide ongoing support to many operations,“ the bank observes.
The survey says farm real estate values continue to rise but “show more signs of softening.” It reports the value of nonirrigated farmland surged about 23% from a year earlier but rose only 3% compared to the previous quarter. “The pace of growth has moderated following steep acceleration in 2021 and cash rental rates have also followed a similar path,” the bank notes.
About 30% of banks expect farmland values to increase in the next quarter compared with a year earlier, the Fed bank states. That’s down from about half of respondents expecting future increases throughout 2021. The share expecting higher cash rents increased slightly from last quarter, but also remained below the average of 2021.
Percent Changes in Plains Dryland Cropland and Cash Rental Rates