The Federal Reserve Bank of Kansas City released a great research piece on Farm Real Estate this past week. The report was authored by Nathan Kauffman, Vice President, Economist and Omaha Branch Executive and Ty Kreitman, Assistant Economist. They always do great work! I provide a few highlights below but encourage everyone to read the full report HERE. Bottom line, farmland has had an incredible run over the past several months. I worry a bit about higher interest rates but still see extremely strong demand for this asset class. (Source: Federal Reserve Bank of Kansas City Ag Finance Update)
- Up +25% In Many Areas – The value of nonirrigated cropland was nearly 25% higher than a year ago in all Districts except Dallas (which the area was up +15%). The pace of growth also increased from previous quarters throughout the U.S., accelerating to the fastest rate of growth since 2012 and 2013 in all Districts.
- Wide-Spread Gains – The strength in farm real estate values also remained consistent across all states. Nonirrigated cropland values increased sharply in all states within Districts participating in the survey (Map). The pace of growth was most rapid in Nebraska, Iowa, Minnesota and South Dakota.
- Higher Commodity Prices and Increased Farm Incomes – Alongside elevated commodity prices, bankers in regions participating in the survey reported that farm income was higher than a year ago for the fifth consecutive quarter. The pace of increase was the fastest on record for both the Kansas City and St. Louis Districts and only slightly less than the record for the Minneapolis District.
- Fewer Loans – The strength in farm finances also supported further improvement in credit conditions. Farm loan repayment rates continued to increase at a steady pace in all regions (Chart 3, left panel). Higher farm incomes also continued to limit credit needs for some producers and demand for farm loans remained subdued across all areas.
- Low-Interest Rates – Providing additional support to farm real estate markets, interest rates remained low. Despite increasing slightly from the previous quarter, the average rate charged on all types of farm loans was well below the historical average (Chart 4). Fixed and variable rates on all loan types remained about 190 basis points and 170 basis points less than the average of the last 20 years, respectively.