Once-soaring land values appear to be softening in some parts of the U.S., a trend some rural bankers expect to continue as weaker-than-normal commodity prices and high input costs weigh on farmers’ bottom lines.
Bankers across 10 agriculture-dependent states, on average, expect a 5.2% decline in farmland values in the next year, although nearly a quarter of them expect a slightly steeper 10% to 20% drop, according to a new survey by Creighton University. Another 25% are signaling continued steadiness in land prices despite slumping farmer incomes.
Just over 8%, meanwhile, believe land values will rise.
“It’s quite evident that there aren’t many predicting an upturn,” said Creighton economist Ernie Goss, who oversaw the September version of the university’s monthly Rural Mainstreet Index.
U.S. producers saw net farm income drop by $35.6 billion (19.6%) to $146.5 billion in 2023, according to the Agriculture Department. It’s projected to fall $140 billion in 2024, a $6.5 billion, or 4.4%, decrease from 2023.
Crop cash receipts, meanwhile, are expected to fall $27.7 billion (10%) to $249 billion in 2024. Production expenses, meanwhile, reached highs of $461.9 billion in 2023, but are expected to decrease slightly to $457.5 billion in 2024.
The slowed growth in land prices is likely tied to weakening of the farm economy, said Nate Kauffman, senior vice president and economist at the Kansas City Fed.
Nate Kauffman“The farm economy is definitely softer than what it was a year ago,” Kauffman told Agri-Pulse. “As we look ahead for the next year or two, it’s something to keep in mind, because incomes are just not as supportive. Profit margins are generally pretty weak in the crop industry.”Land values tend to go down a year or two after farm incomes do, said Iowa State University Economist Chad Hart. The longer the downturn lasts, the steeper the drop, he added.
Hart believes the bankers’ predictions are built on these trends and says decreases of up to 5% are quite possible.
“Here in Iowa, we’ve already seen a little slippage in some land values on the order of around 3%, and that’s with the income drops we’ve already experienced.”
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Bankers aren’t the only ones with weakening expectations for land prices. Producers are thinking along the same lines, according to the latest Ag Economy Barometer, a monthly Purdue University survey of 400 U.S. farmers. The Short-Term Farmland Value Expectations Index, based on results of the survey, fell 13 points in September to 105, its lowest reading since the spring of 2020.
Still, the downturn won’t last forever. Prices for corn, soybeans and wheat are expected to improve slowly over the next few years, Hart said. It’s quite possible that after a period of slight declines, they’ll slowly rise again.
“We’re not going to rocket right back up to those strong net farm incomes that we had a couple of years ago, but we look like we could be rebuilding slowly over time,” he said. “If that’s the case, that will help hold land values sort of where they are.”
Land prices have been growing for four consecutive years, reaching an average value of $4,170 per acre in 2024, according to USDA figures.
But the size of these increases has fluctuated. At their highest, in the first quarter of 2022, non-irrigated land prices rose 24% percent, according to the Kansas City Federal Reserve Bank. More recently, in the second quarter of 2024, they’ve risen at a much slower rate — 4.2%.
Irrigated cropland, similarly, grew less than 5% from a year ago. Ranchland values, however, have seen 6% growth. The cattle market is “substantially stronger” than crop markets, which could account for the slightly higher ranchland price increases, Kauffman said.
Land prices are expected to “moderate further in the months ahead,” according to the quarterly ag credit survey published by the bank, whose district covers Colorado, Kansas, Nebraska, Oklahoma, Wyoming and parts of Missouri and New Mexico.
If growth slows or values decrease, prices would still be above what farmers were paying 10 to 15 years ago, Kauffman said.
“Land values have been at record levels — historically high, even if in some places they’ve [gone down] a bit,” he added.
Eric Sarff, president of the nationwide transaction advisory firm Murray Wise Associates, said land values are entering a “plateau period.” Some areas may see price reductions on more marginal ground, while others may remain consistent.
“I definitely think we’re just kind of starting that plateau timeframe right now. Plateau doesn’t always mean flat — we’re seeing some softening in some areas already.”
Sarff expects lower quality land being sold on the market. Still, he said, strong prices may hold in some highly productive regions where people have cash to spend.
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