Agricultural real estate values remained strong through the end of 2023 despite a moderation in the farm economy and higher interest rates, said Kansas City Federal Reserve Bank Economists Nate Kauffman and Ty Kreitman in a Bank release.
According to a survey, the value of non-irrigated cropland increased by as much as 10% from a year ago in some regions, the economists said. The sharp rise in financing costs over the past year and thinner profit margins for many key commodities has the potential to weigh on farmland values, but coming into 2024 those factors have not tempered land markets materially.
FOURTH QUARTER SURVEY
Agricultural real estate values remained firm through the end of 2023, the Bank said. The value of non-irrigated cropland increased by an average of nearly 10% over the past year throughout districts participating in the survey.
Those districts were Chicago, Dallas, Kansas City and Minneapolis, the release showed.
The growth in farmland values was markedly lower than the previous two years, but remained strong. Growth also was clustered together among the four districts at around 8%. This was down from a recent high of 20% to 25% seen in late 2022 and early 2023.
Agricultural real estate values remained solid despite higher interest rates, the economists said. Average interest rates charged on all types of farm loans were largely flat compared with the previous quarter, but remained at the highest level in more than a decade.
Higher interest rates have increased financing costs considerably for farm borrowers and could be particularly challenging for producers with large amounts of debt, they said.
FARMLAND VALUES HOLD FIRM
Farmland values also have remained firm despite a moderation in farm financial conditions, the Bank release said. Farm income decreased from a year ago.
Profit margins for many producers thinned over the past year alongside lower prices of key commodities and the share of banks reporting that incomes were lower than a year ago has increased gradually in recent survey periods.
Softening in farm finances put some pressure on agricultural credit conditions, but stress remained low, they said. Farm loan repayment rates slowed slightly compared with a year ago in all participating regions.
Despite some moderation in rates of repayment over the past year, delinquency rates on farm loans at commercial banks remained low in recent months, the release said.
Extreme growth in farmland values is not necessarily a good thing for people trying to get into farming, a market analyst said. The sheer size of a loan to cover the cost of acquiring land and equipment could be taking many would-be farmers out of the running.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $183.46 per cwt to $185.54, compared with last week’s range of $175.66 to $184.50 per cwt. FOB dressed steers, and heifers went for $283.61 per cwt to $289.38, compared with $282.97 to $288.11.
The USDA choice cutout Tuesday was down $0.05 per cwt at $301.74 while select was up $2.41 at $290.40. The choice/select spread narrowed to $11.34 from $13.80 with 74 loads of fabricated product and 26 loads of trimmings and grinds sold into the spot market.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.35 to $1.45 a bushel over the Mar corn contract, which settled at $4.08 1/4 a bushel, up $0.01 1/4.
No contracts were tendered Tuesday for delivery against the Feb live cattle contract.
The CME Feeder Cattle Index for the seven days ended Monday was $246.46 per cwt, down $0.18. This compares with Tuesday’s Mar contract settlement of $253.00, down $0.05 and Apr’s $258.95, up $0.05.