Interest rates rise faster than farmland values, says economist

For the first time since 2001, interest rates are rising faster than farmland values, creating a potential obstacle to land purchasers, said assistant economist Ty Kreitman of the Kansas City Federal Reserve Bank. “With interest costs now above average land value appreciation, farm operating profits will determine the magnitude of returns for financed land,” he said.

“Although growth in farmland values held firm in 2023, higher interest rates and a moderation in agricultural commodity prices have cut potential returns and could dampen demand for farmland — and thus farmland values — going forward.”

Meanwhile, ag bankers said in a Federal Reserve survey that the volume of new non-real estate loans was 15% lower during the final quarter of 2023 than during the same period in 2022. While the number of new loans was slightly higher than in fall 2022, the amount borrowed, when adjusted for inflation, was the lowest since 2017.

“Elevated production costs, higher interest expenses, and lower commodity prices have increased financing needs of many producers; however, strong liquidity built up in recent years likely supplemented borrowing needs of some operations throughout the year,” said Ag Finance Update.