The value of farmland in eastern Kansas increased 6.2% in the first half of 2023. Frontier Farm Credit reports a gain of 10.6% compared to July 2022.
Frontier Farm Credit, a financial cooperative, appraises seven benchmark farms twice a year to monitor trends in real estate in eastern Kansas.
Values on dryland and irrigated cropland farms rose an average of 7.6% in the first six months of the year and for pasture and ranchland. As a whole, three of the benchmark farms increased more than 5% since January, the highest gain being 20.5%. The remaining four saw little to no change.
The year-over-year average increase of more than 10% is slightly below increase for the past two years – 13.4% in 2021 and 13.5% in 2022.
Benchmark values remained strong in markets where the availability of land was limited. In the northwest area of Frontier Farm Credit’s service territory, for example, the real estate markets some record-breaking sale prices and marginal ground sold for more than expected.
While successive interest rate hikes typically impact the real estate market, “the other driver in real estate is farm profitability and the overall financial health of agriculture. This has been extremely strong,” said Tim Koch, executive vice president of business development for Frontier Farm Credit. “Profitability and optimism in agriculture have more than offset the negative pressures created by the increased interest rates.”
Profit margins are tightening because of higher input costs and lower commodity prices. Producers generally are planning for 2023 profits near break-even levels. This could result in a softening of land values, Koch said.
“But there is lots of liquidity on balance sheets and overall leverage is down significantly,” he said. “So even if profit margins, on average, return to break-even levels, the overall financial strength of some producers will lead them to stay in the real estate market. We still could see instances of aggressive bidding for the right farm in the right location.”
The chart below shows the average change in benchmark farm values.
Separate from benchmark farmland values, Frontier Farm Credit also tracks actual land sales. The average price of tillable farmground in eastern Kansas sold for an average of $3,935 per acre, about 28% below the second quarter of 2022. However, this average is based on less than half the sales that took place during the same period a year ago and could change as additional sales are recorded. To date, sales in the second quarter of 2023 were down 61% year-over-year.
While realtor sales were down slightly, it remained the primary method of sale. Public auctions have slightly decreased compared to 2022. Private sales increased a bit.