Agricultural real estate market cooling after record sales due to high interest rates

Reno County farmer Lauren Alderson harvests a field of wheat in the northern area of Reno County last summer.

After record-high sales, the agriculture real estate market began to cool in the fourth quarter of 2022 due to rising interest rates and inflation pressures, according to a Farmers National Company report.

That trend has continued into the first half of 2023 with fewer properties being offered for sale and market values that, while still strong, are dramatically off the pace seen in the first half of 2022, it said.

“These operators have enjoyed a period of high liquidity over the past five years but are now moving into a period of increasing debt service and borrowing. This will most likely result in less available cash reserve to deploy for capital expenditures and land purchases,” said Paul Schadegg, senior vice president of real estate operations for Farmers National Company.

Results from the Federal Reserve District Surveys reflect this trend between the third and fourth quarter of 2022 and now continuing into the first half of 2023. Value growth is still positive across the Midwest, but increases are now in the single digits instead of the double digits seen in 2021 and 2022, the report said.

“While investors have not always been the successful buyer of properties offered for sale, they certainly are part of the equation, helping set a floor on land values and creating a competitive market,” Schadegg said. “If farm operators step back from aggressive bidding for land, investors will most likely step in to take advantage of purchasing options.”

Farmers National Company Agent Survey

Farm operators remain the largest group of buyers through Farmers National Company, accounting for nearly 80 percent of all land sale transactions.  

Schadegg said there continues to be a strong appetite for agriculture properties from individuals considering farm expansion and investment opportunities due to an overall bullish outlook for the ag economy, which will continue to drive demand for high-quality cropland. 

Commodity markets will remain the primary driver in land sale activity and value moving forward, he said.  

“But with that being said, profitability is what will determine what the land market will bear. So, we must consider rising interest rates, inflation and supply chain into the overall picture,” Schadegg said. “Landowners continue to look for opportunity in the agriculture land market, deciding if this is the best time to sell at historic values or retain ownership of what continues to be a very valuable asset.” 

The sales volume at Farmers National Company through the first half of 2023 continues to exceed the five-year average but is slightly off the “exceptional” pace set in 2021 and 2022, according to the report.

Motivated buyers continued to drive bidding at late spring sales, resulting in stable and strong values across all classes of land, Schadegg said. 

“Looking ahead to the second half of 2023, we anticipate strong competition for high-quality land offered for sale. The overall U.S. agriculture economy is healthy with Midwestern banks reporting increased operational lending but strong loan performance and projections for a profitable 2023 growing season. Our pipeline for scheduled fall sales is beginning to fill at a typical pace with buyers and sellers of farmland requesting information on upcoming sales,” Schadegg said. 

“We remain confident that the strong demand for quality (agricultural) land will continue through the year. That opinion, coupled with the stable ag economy and a supply/demand scenario favoring the land owner, will maintain the current and long-term value of farmland across the U.S,” he added. 

Employee-owned Farmers National Company is the nation’s leading landowner services provider, managing more than 5,000 farms and ranches in 30 states comprising more than 2 million acres.  

Sign up to receive the best Underground art & real estate news in your inbox everyday.

We don’t spam! Read our privacy policy for more info.

This post was originally published on this site be sure to check out more of their content.