Despite broad weakening in the farm economy and higher interest rates, Central Plains farmland values rose during the first quarter of 2024. The quarterly survey of ag bankers conducted by the Federal Reserve Bank of Kansas City found the value of all types of farmland, on average, grew by 5% from a year ago throughout the district. In addition, it found cash rents on all types of land rose modestly in the first quarter following “tepid growth” throughout 2023.
Looking ahead, the bank says lenders expect both farmland values and cash rents to be flat going forward. “Looking ahead to the next three months, 75% of respondents expect the value of nonirrigated farmland to be unchanged compared with a year ago and 85% expected cash rents to be unchanged. Equal shares of the remaining respondents anticipate increases and decreases in the coming months, highlighting expectations of generally stable conditions for farmland markets,” the bank states.
The increase in farmland values and cash rents is somewhat surprising despite the general decline in the farm economy noted by the bank.
“Farm income and credit conditions in the district tightened in the first quarter of 2024,” the bank states. “Farm incomes retracted at a sharp pace, farm loan repayment rates declined at a modest pace and loan demand rose notably. Conditions tightened comparatively more in states with greater reliance on crop revenues and less in more cattle heavy areas. As lenders entered the renewal period for annual operating lines, loan denials were very limited but many reported an uptick in carryover debt and loan restructuring to meet liquidity needs,” the bank states.
The bank goes on to state ‘many lenders highlighted growing concerns about deterioration in working capital because of low prices, particularly for crop producers. Strength in cattle prices, however, has supported incomes for many cow/calf producers. A larger share of banks also reported higher loan demand following multiple years of subdued credit utilization, a sign that strength in farm finances built up in recent years has moderated. A continuation of subdued crop prices throughout 2024 would likely drive further tightening in agricultural credit conditions and elevated interest expenses could put additional pressure on farm borrowers,” the bank comments.
The Kansas City Federal Reserve serves banks across Kansas, western Missouri, New Mexico, Oklahoma and the mountain states of Colorado, northern New Mexico and Wyoming.