With external factors such as a lack of available real estate supply and disruptions caused by global conflicts potentially impacting agriculture production, many are likely wondering about the state of the agriculture industry and land values in the United States as well as where the market could be headed in 2024.
To discuss current market trends and share his thoughts on what the coming year may hold for the agriculture industry, Chief Economist from Farmer Mac, Jackson Takach was recently featured on an episode of the National Land Podcast. Below are some of the major takeaways from Takach’s appearance.
Ag Market Update
Farmland values over the past twelve months have largely remained strong in the wake of the record-breaking farmland prices seen in 2022, with new records even being set in some states. Although values have begun to come back down, many believe that we aren’t likely to see a kind of industry-wide downturn anytime soon. During his appearance on the National Land Podcast, Takach explained this sentiment, stating the following:
“Three months ago, we were saying, ‘I think the ag economy might head for a little bit of a slowdown, we’ve got revenues coming down a little bit, commodity prices are cooling. That’s probably going to cool down revenue, which might compress farm profitability.’ So we’re three months from that initial call and it feels like we’re pretty much on track. You look at the commodity markets, they’re lower than a year ago.
If you look at the interest rate environment, it’s elevated and we expected it to be elevated and remain elevated. There’s a bit more volatility going up or down since we last talked, but in that sense, there’s a lot of consistency across the markets and the expectations in those markets.
What I think has maybe changed is some of the outlook for 2024. With fiscal policy, there’s quite a bit of political stress, and I think some of the activities globally might disrupt the world economy in the next twelve months. There’s always something going on, but I think in terms of the Ag and interest rate markets, it’s been a little more steady the last couple of months and expectations have really met reality.”
Available Real Estate Inventory in 2023
One of the largest challenges facing both real estate professionals and prospective land buyers alike is a lack of available inventory. Many brokerages across the country have reported listing inventories being down anywhere from 10-15% over the past year.
When asked for his thoughts on real estate inventory over the next year, Takach indicated that supply may increase and that there are factors to suggest that demand would keep pace with an increase in available real estate. He stated, “A lot will depend on the buyers, right? I think it will be hard to go lower in terms of supply. I think the supply is very constrained if you look at tools like AcreValue that track the level of inventory transactions, we’re kind of sitting on multi-year lows in the number of sales that have been captured by these transaction management companies and data trackers. We’re seeing near-historic lows, so it’s hard to see it going down which means there’s probably going to be more activity coming on the market in the next 3 to 6 to 12 months.
It’s all about ‘Does that supply find demand?’ There are still a lot of really positive elements out there, you have cash coming over from ‘21 and ‘22, where a lot of producers had record or near-record profitability. So with a lot of cash coming into the system combined with government payments from ‘20 and ‘21, balance sheets are pretty healthy. I think there’s enough dry powder out there to keep that demand high enough to support a sizeable increase in supply.”
Impact of Global Conflicts on the US Ag Economy
Over recent years, the US ag market has been impacted by a variety of global events such as the Covid pandemic and the war in Ukraine. These events have put unusual pressure on agriculture production in the United States, leading to increased input costs for necessities like fertilizer as well as increased demand from overseas for crops like wheat.
In light of the recent events in Israel, many are wondering whether this conflict will have similar consequences for the US ag economy as these other global events. There are a variety of factors that differentiate this conflict and the impact that it may have on US agriculture production that may mitigate many of the negative effects, as Takach explained on the National Land Podcast.
Takach stated, “If I think about production supply, I don’t think we should see that much disruption. But when you do have that kind of geopolitical stress as we’ve seen in Ukraine, Russia, and now Israel, that causes weird things to happen in the market. So maybe [there’s a] flight to quality, and maybe we see the dollar index getting stronger. That could impact the commodity price market because everything’s priced in dollars. If the dollar gets stronger, it puts downward pressure on commodity prices.
So I think it’s probably more second-order effects, we’re not going to see a direct impact on supply and demand for goods as a result of the conflict, but it’s certainly going to create some market movements that could impact agriculture almost immediately. When Russia moved into Ukraine, I think wheat prices tripled because they make a lot of wheat and feed a lot of people, so suddenly there was a more immediate impact on supply and demand there. With the conflict in Israel, I think that’s probably likely to play out a bit more indirectly.”
If you want to learn more about Takach’s thoughts on the agriculture industry in the US, listen to his full appearance on the National Land Podcast here!