Farmland values climb in response to numerous factors
The 2023 Land Values Summary report released by the USDA last week showed significant growth in national average agricultural land values. Overall values are still being influenced by high commodity prices, as well as new government programs which incentivize farmers to retire lands labeled “environmentally sensitive,” ultimately reducing farmable land. Additionally, there was a large state-to-state variance in growth depending on factors like concentration of high-value crops or expansion of urban and suburban areas into previously rural areas. Details from the report can be found below.
The U.S. average farm real estate value, which includes the value of all land and buildings on farms, was valued at a record $4,080 per acre in 2023. The 7.4 percent year-over-year increase was larger than average, but well behind the 12 percent increase in 2022. Over the last two years, this measure has grown by 21 percent.
The largest increases in farm real estate value were seen in states with high row-crop acreage. To this point, double-digit percent increases in value were seen in Kansas, Nebraska, North and South Dakota, Colorado, and Indiana, as well as a few states in other parts of the country. On a relative basis, smaller growth was seen in the West and in much of the Northeast and Southeast.
U.S. average cropland value increased by $410 per acre (8.1 percent) over the 2022 number, and the breakdown by state is very similar to that of the growth in farm real estate value.
Pastureland value increase by $160 (6.7 percent) over 2022 to $1,760 per acre. Pastureland differed from the other categories in that a handful of mid-Atlantic and Southeast states showed strong growth. Additionally, all New England states saw at least 16 percent growth year-over-year. On an absolute basis, the Northeast consistently had by far the most valuable pastureland, with all New England states close to $10,000 per acre, and New Jersey over $18,000 (more than ten times the national average).
Ag News Highlights
Tyson Foods closes four plants
In early August, Tyson Foods announced that it was closing four poultry plants located in Arkansas, Indiana, and Missouri to further cut expanses on the heels of several months of cost-cutting moves. Input costs for farmers have been climbing sharply for more than two years and there is little hope for substantial relief in the near future. According to Dr. Scott Brown, agricultural economist at the University of Missouri, “Feed costs have continued to be high, and we all know it’s dry in many parts of the country today. That’s led to concerns about yields this fall and could keep prices high.”
In addition to high feed costs, labor costs have also soared in this high-inflation period, mainly because of low worker availability. These factors have sent profitability in the industry plummeting and has resulted in cutbacks like the ones Tyson is instituting. Ultimately, this should lead to higher consumer prices going forward due to lower supply of meats. (KOMU.com)
Farm loan activity declines
Farm lending activity at commercial banks fell in each of the first two quarters of 2023, according to a new report from the Federal Reserve Bank of Kansas City. The finding is unsurprising due to rising interest rates which have resulted in more farms preferring to utilize cash reserves to fund expenses. Of the farms that are taking out loans, an increased share are opting for variable rates as borrowers are generally less interested in locking in at current levels. The median rate for a loan is 8.5 percent — more than double what it was at the beginning of 2021. (Kansas City Fed)
Pork belly prices soar
In May, the U.S. Supreme Court ruled that Prop 12 in California, which raises the standards of housing pigs and hogs used for whole-muscle pork products sold in California, does not violate the constitution. The combination of this ruling and tight supplies have caused the price of hogs to climb rapidly (see the commodity price chart to the right). More specifically, the price of pork bellies has seen a historic rise. Retail prices do not yet reflect the growth in wholesale prices because much of the bacon currently available was purchased prior to the price rally, but it’s likely that consumers will see even higher breakfast costs in coming months. (The Pig Site)