Farmers face high-interest environment as pace of land sales slows 

Farmland

As interest rates remain high and farmers’ cash is more constrained, bank credit has shifted somewhat from land purchases to operational lending. The pace of farmland sales has reached a plateau in every region, although the best farmland still commands top prices and buyer interest.

That was the take of Paul Schadegg, senior vice president of operations for Farmers National, following the Kansas City Fed’s Midwestern  survey of banks. “Midwest banks are seeing increased operational lending, as input costs have increased for farmers,” Schadegg told High Plains Journal. He thinks the higher-interest credit environment will continue for the foreseeable future, although he added that much depends on the commodities market.

He said local buyers are still predominant among buyers of farmland, although investor buyers do see sales plateaus as opportunities that allow them to take advantage.

Schadegg said farmers are coming off a 5-year period of great liquidity, thanks in large part to strong commodity markets and federal transfer payments during the COVID-19 lockdowns. As farmers become more cash-constrained, some are returning to using operational notes rather than cash to finance operations—which used to be standard practice. 

However, rural loan performance has been strong, and is expected to stay that way, he said. “Class A land is still selling well, and setting new highs in price,” he said. “With Class B and C land, there has been a fall-off in sales, and even declines in some areas.” In this pattern, farmland is following residential real estate markets, he said.

Regarding the decision of the Environmental Protection Agency to not raise renewable fuel limits, he said it could eventually affect land markets.

Despite the land sales slowing, though, Schadegg sees “normal activity” going forward into the fall with a still-strong appetite for good quality agricultural land extending into 2024.

“We are going to maintain values going forward,” he said. “Owners are in the driver’s seat.”

David Murray can be reached at [email protected].