From farmpolicynews.illinois.edu:
The Federal Reserve Bank of Kansas City’s Ty Kreitman reported yesterday that “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.”
The potential for lower farmland demand is largely driven by the fact that, “In 2023, interest costs on new farmland loans (blue line) surpassed the recent average annual appreciation in land values (green line) for the first time since 2001,” Kreitman wrote.
“From 2002 to 2022, growth in agricultural real estate values was well above the cost of financing, supporting demand for farmland,” Kreitman reported. “With interest costs now above average land value appreciation, farm operating profits will determine the magnitude of returns for financed land.”
However, farm operating profits could be low in the coming year, as farmdoc daily’s Nick Paulson and Gary Schnitkey reported last week in revised 2024 crop budgets, with “a reduction in the corn and soybean prices assumed for both 2023 and 2024 resulting in lower return and profitability projections” for farmers in Illinois.
“Current farmer return expectations are negative for both corn and soybeans across all regions for 2024 for cash rented land at average cash rent levels, suggesting cost adjustments will be needed in 2024 and beyond,” Paulson and Schnitkey wrote.