Farmland Values Hold Steady as Credit Conditions Show Signs of Strain

The agricultural landscape in the Seventh Federal Reserve District has seen nuanced shifts in farmland values and credit conditions in the first quarter of 2024, according to a survey of 141 agricultural bankers in the region.

Farmland Values

Farmland values in the District experienced a 4% year-over-year increase, marking the smallest gain in three and a half years. This deceleration continued a trend seen since the third quarter of 2020. Despite this, "good" farmland values in the District rose by 2% from the fourth quarter of 2023 to the first quarter of 2024.

The demand for purchasing farmland decreased in the three- to six-month period ending in March 2024 compared to the same period in the previous year. There was also a notable decrease in the amount of farmland for sale, as well as in the number of farms and acreage sold during the winter and early spring of 2024 compared to the previous year.

Cash rental rates for District farmland saw a slower growth of 2% in 2024 compared to previous years. However, despite this slower growth, a majority of responding bankers forecasted District farmland values to remain stable during the second quarter of 2024.

Credit Conditions

Agricultural credit conditions showed signs of weakening in the first quarter of 2024. Repayment rates for non-real-estate farm loans were lower compared to the previous year, with higher renewals and extensions of these loans. Demand for non-real-estate loans relative to the previous year was up for the second consecutive quarter, while the availability of funds for agricultural lending was down from a year earlier.

Average nominal interest rates on farm loans were higher than the previous year, but slightly lower than in the previous two quarters. Adjusted for inflation, average real interest rates for all types of farm loans continued to rise in the first quarter of 2024.

Looking ahead, farmers are projected to face challenges, with many expected to break even or experience setbacks in equity and working capital. Despite concerns about overvaluation, bankers generally expect farmland values to remain stable in the second quarter of 2024.

In summary, while farmland values continue to increase, albeit at a slower pace, credit conditions are showing signs of strain, reflecting broader challenges facing the agricultural sector in the Seventh Federal Reserve District.