The surge in US farmland prices has slowed amid rising interest rates, and eroding confidence in the prospect of further growth, central bank data showed.
Farmland price growth in key US agricultural states remained strong in the April-to-June period, rising by 19.1% year on year for irrigated land, and 21% for non-irrigated, in the central Plains, results of Federal Reserve surveys showed.
In the Corn Belt – including Illinois, Indiana, and Iowa, the “I states” much-watched by corn and soybean investors – prices of “good” agricultural land rose by 22% year on year.
However, while some areas continued to show accelerating appreciation, with Indiana values soaring by 25%, their fastest in more than a decade, the overall pace of price growth slowed from highs seen in the first three months of the year.
‘Smallest gain since 2020’
“Farm real estate values continued to rise, but the pace of growth slowed in the second quarter,” said the Fed’s Kansas City bank, which monitors a region including Kansas, the top wheat-growing state, Nebraska and Oklahoma.
The Fed’s Chicago bank, which covers the Midwest, noted that on a quarter-on-quarter basis, prices appreciated by 2%, half the pace seen in the January-to-March period and indeed “the smallest quarterly gain in district farmland values since the third quarter of 2020”.
Prices in Illinois, the top soybean-producing state, were static quarter-on-quarter, with those in Wisconsin falling for the first time in more than two years.
‘Rising interest rate environment’
The market was finding support from buyers outside agriculture, such as investors or lifestyle buyers.
David Oppedahl, senior business economist at the Chicago Fed, noted that “several” lenders surveyed “mentioned buyers from outside agriculture were helping to push farmland values higher, indicating demand had remained healthy”.
However, he highlighted too that while farmers were enjoying strong prices of crops such as corn and soybeans, they faced pressure too on incomes from the likes of rising wage bills and fertilizer costs, besides expanding interest rates.
“Although momentum from strong farm incomes contributed to higher farmland values, it was uncertain how long this effect would last, given the rising interest rate environment,” he said.
“District bankers seemed wary about Midwest agriculture’s prospects over the near term”.
The Kansas City Fed said that “the slower increase in land valuations followed an uptick in farm loan interest rates”.
In the Midwest, the proportion of lenders surveyed expecting prices to rise in the next quarter came in at 25%, compared with a comparative figure of 48% in the Fed’s previous report, in May.
“At least three-quarters of survey respondents in Illinois, Indiana, and Iowa were of the view that farmland was overvalued,” Mr Oppedahl said.
The proportion of bankers foreseeing land price falls stood at 4%, compared with 1% in May.
The Kansas City Fed noted a “softer outlook for farm income”, following what it termed a “notable increase in production expenses”.
While the proportion of banks reporting rising producer expenses was “similar to a year ago… far more respondents indicated the rise in costs was more substantial”.