2024 has largely been a year of stability and resilience in the land real estate market following the massive appreciation in land values observed in recent years. While values have slowed their rise in many markets across the country, the absence of any large-scale downturn in land values is a testament to the sustained demand for available land across the country. 

As buyers and sellers look ahead to the final quarter of 2024 and beyond, Jackson Takach appeared on the National Land Podcast to identify a few factors currently impacting land values and the real estate market worth keeping an eye on!

Interest Rates Cut For First Time Since COVID

One of the most significant developments in Q3 was the first interest rate cut since the COVID-19 pandemic. The Federal Reserve cut rates by half a percentage point in September, a decision unlikely to have a strong effect on long-term credit for the time being but will immediately impact short-term loans over the next month or two.

For farmers, they can expect better rates on operating lines of credit, for residential borrowers it would be their home equity and credit card debts. These things are directly tied to the short-term interest rate and could start to see improvement as early as next month in the wake of these rate cuts.

For other expenses, it will take some time for these rate cuts to start impacting prices. In January/March when farmers are building up operating lines of credit to purchase supplies for planting or expanding their cattle herds, they’ll start to see the effects of these rate cuts. Hopefully, 2025 will be a more affordable year for ag landowners and producers.

As Takach explained, the best thing anyone doing business in this environment can do is to not overextend themselves. Rising rates are a good reason to wait and see what the market does, but with rates coming down, it’s a fine time to continue doing business and borrowing. If rates go down again a year from now, borrowers can always refinance down to those new lower rates.

USDA Outlook Shifts

At the beginning of 2024, predictions for farm revenue in the US were significantly down from previous years and commodity prices still remain low. It’s no secret that farmers are expecting lower revenues in 2024, especially with input costs staying high. The recent farm income forecasts confirm that incomes are likely to be down this year compared to 2023, although some input costs may see some relief.

One change seen in the recent USDA data is that feed costs for cattle, hogs, poultry, and other livestock have come down over the year. The same is predicted for fertilizer, including lime and soil conditioners, as well as pesticides. The cost to feed/raise livestock coming down means that farmers can expect slightly better profit margins when it comes to livestock.

Takach predicted international trade is likely to play a large role in the strength of crop markets over the next year, especially for large export crops like corn and soybeans. If we see some of that international trading resume, prices for corn and soybeans may recover well in 2025.

Growing Demand For Farm Debt

One final point that Takach made was his expectation for the demand for farm debt from financial institutions across the country to increase in 2025. As rates become more manageable, more institutions are likely to consider farm debt as a means of diversification. 

Speaking to this point, Takach stated, “I think demand for farm debt is probably going to pick up. As I talk to bankers across the country about conditions on the farm, changeover in farmland, and recapitalizing balance sheets, a common thread is that there’s going to be some additional need for debt. That could be tapping the equity they have from farmland owners. At 8% interest rates, there’s less demand for this debt, but as rates come down into the 6’s and 5’s, people start thinking about diversifying and tapping equity for working capital.”

“Whatever the reason is, we’re starting to see that demand and it may change more as we head into 2025. Higher production costs require additional dollars in operating lines and leave some debt rolling over from this year to next if they can’t market all their grain. So the demand for credit is picking up and I think the drop in rates couldn’t happen any sooner to try and make that a more affordable increase in credit demand for next year’s balance sheets and income statements.”

If you’re interested in learning more about what may be on the horizon for the land real estate market in 2024 and 2025, listen to Jackson’s full appearance on the National Land Podcast or get in touch with your local Land Professional today!