One topic likely on the minds of many farmers right now is the state of farmland values in 2024. The past few years have held their fair share of trials and tribulations for the land industry as a whole, but specifically for farmers. Following the rapid appreciation of farmland in many parts of the country, U.S. farmers have been faced with higher input costs, supply chain delays, and a variety of other challenges resulting from lingering effects of the COVID-19 pandemic as well as new conflicts abroad.

As we move into the first quarter of the year, many farmers and landowners have likely begun to wonder what this year may look like regarding farm profitability and land values, as well as the factors that may impact farmers the most in 2024.

During a recent episode of the National Land Realty Podcast, Dr. Gary Schnitkey from the University of Illinois shared his projections for farmland values in 2024 and what landowners should be aware of this year. Here’s what you need to know!

What Did Land Values Look Like in 2023?

Across many parts of the country in 2023, we saw land values stabilizing in the face of rising interest rates. Land sales in most markets slowed last year as many landowners chose to hold onto their landholdings in the face of rising interest rates and general uncertainty. Rising input costs also created slimmer profit margins for many farmers in the U.S. Despite this, land values stayed steady in many markets, largely plateauing or seeing only mild depreciation.

Dr. Schnitkey provided a brief overview of the market in 2023, stating, “So in 2023, roughly from the first quarter on, land prices remained relatively the same. They reached the plateau. In the Midwest, we had some very good years in 2022 and 2021, so our Midwest farmers are in pretty good financial shape. There was a plateau, we’re looking at lower incomes because of lower commodity prices. The input prices aren’t coming down as fast as the commodity prices, so we have a situation where we have much higher break-even prices now than before 2020. So everything in the farm income situation is slower in 2023, but we’re still in really good financial shape.”

What Factors Should Farmers Be Aware in 2024

Given the complex nature of the agricultural industry, there are a variety of factors that could impact productivity and farmland values in 2024. Here are a few factors to keep an eye on as we move forward into this year.

Input Costs

One of the most impactful factors for farmers last year was the rising cost of input costs such as fertilizers and pesticides. Exacerbated by the war between Russia and Ukraine, fertilizer prices rose as production stalled and other nations scrambled to make up the deficit. While costs are still high in 2024, U.S. markets have started to see some relief, as Schnitkey explained.

“We’re looking at some relief in fertilizer and actually natural gas has fallen quite a bit since last year. Fertilizers, and in particular nitrogen, have fallen. We were looking at anhydrous ammonia being above $1,200 per ton throughout early last year, and now it’s sort of in the $700 to $800 per ton range. So that’s a considerable fall. We’re seeing some relief on the crop input side, pesticides have come down a bit but not as much as some of the fertilizers, and seeds [are] basically holding steady and perhaps going up. So we are seeing some relief but we’re still looking at cost levels that are pretty high.”

Middle East Conflict, Supply Chain, and Fuel Prices

Since late 2023, coverage of the conflict between Israel and Hamas has largely dominated media headlines, prompting many to wonder how this conflict could impact U.S. fuel prices, supply chain efficiency, and more. 

While concerns about fuel prices are understandable and may come to fruition to some extent, current supply chain conditions are more likely to be affected by labor shortages than rising fuel prices, as Schnitkey explained, stating the following:

“The supply chain I would say from [the standpoint] of delivering product has held up extremely well. We were really concerned about that throughout COVID-19, and the Ukraine-Russia war obviously impacted those prices as well. The supply chain is delivering, but the costs are high, right? It’s not only fuel, it’s labor, it’s getting truck drivers, it’s the whole nine yards. So I would expect supplies to be delivered but at a higher cost. Personally, I don’t see that ever going back to pre-2000 levels, because who knows what fuel [prices] are going to do. We have a little conflict going on in the Middle East that could spread out, so that wouldn’t be a great thing for fuel costs, but the labor side of it, finding employees to move [supplies], the transportation, that sort of thing, that’s going to be tight forever, right? We seem to have new labor shortages and I don’t see those going away.”

“The Palestinian-Israel conflict in and of itself probably wouldn’t impact fuel because they’re away from the sources but a wider conflict would. All you have to do is go back to the 1970s and the Yom Kippur War that started off our oil shortage. I don’t think that would happen again because we now produce much more of our crude [oil] in North America, but if you take off that area, you would make things more costly. So yeah, it’s something to keep an eye on. Conflicts don’t make commodities cheaper.”

Inflationary Concerns

Given the high inflation seen across the United States over the past few years and the way that the government raised interest rates in 2023 to combat inflation, many have drawn parallels between our current situation to that of the farm crisis of the 1980s. 

While the high inflation and interest rates of the 1980s may appear similar to current market conditions on the surface, Schnitkey explained that our current land market is in a position to be much more resilient to the pressures of these factors, with a lack of available labor being a larger result of current inflationary pressures. 

Schnitkey stated, “In the 1980s, you had a lot of debt out there, debt-financing on land purchases. There’s much less of that today. Most of the land that’s being purchased is being purchased at modest debt levels or no debt levels at all from individuals who have had good years and have the cash to spare. What made the 1980s bad was that interest rates went up, people had debt, and all of a sudden we’re debt-servicing well above the ability of the farm to generate income.”

“Inflation plays a role in [input costs] obviously, and once an inflationary spiral starts, it’s hard to slow that down. The other part is just the supply issue. Demographically, there are far fewer young people coming on, and the baby boomers are reaching that retirement age. So we’re looking at a constriction of labor”

What to Expect From Farmland Values in 2024

For farmers and landowners in general, 2024 appears to be fairly similar to 2023 in that U.S. land values aren’t likely to see any major appreciation or depreciation this year, barring any kind of massive economic event like the COVID-19 pandemic. Landowners should expect a relatively stable market, with land values for the most part maintaining their current levels. Farm incomes may see some downturn given the lingering high prices of production inputs and low commodity prices, though overall profit margins should remain relatively similar to those seen in 2023. 

Dr. Schnitkey echoed this sentiment with the following statements: “If I were looking forward, I would say that where we’re at in 2024, we have higher costs, lower commodity prices, but our incomes are still positive and generally that results in stable farmland prices. It takes a lot to cause farmland prices to move down. You’re going to see a plateau until either something good or something bad happens, and there’s nothing really to say that either one of those things are going to happen in 2024.”

“I see farmers coming out of 2024 with incomes being down but not enough to cause major adjustments anywhere. So we will continue with roughly the same cash rent levels, probably no increase, maybe a little bit of downward pressure on the high end. Interest rates are stabilizing, and all of this is cause for stability out there. Again you don’t see interest rates increasing, and we see rental rates in Midwest farmland stabilized and not coming down a lot until something happens.”

For farmland owners looking to divest their landholdings, 2024 is looking to be a good year for stable land values and buyer availability. Since many parts of the country are still experiencing a severe lack of available real estate inventory, landowners planning to sell this year may command a higher price than they would have in years past. If you’re ready to take the first step towards selling your property, reach out to your local Land Professional today!