Growth in farm real estate values remained strong, but showed signs of easing alongside higher interest rates. The average interest rates on farm loans increased from record lows at the beginning of the year to decade highs by December.
Despite the rapid rise in rates, the value of farmland continued to increase, but at a more tempered pace than earlier in the year. The growth in farmland values has softened most for lower-priced land and in states most heavily affected by drought.
Looking ahead, a majority of bankers expect higher interest rates to have a negative effect on farm real estate and some anticipated a decline in values.
Farm finances and credit conditions were supported by strong commodity prices in 2022 and the outlook for 2023 remained positive despite some persistent risks. Elevated prices for most major commodities continued to support profit opportunities for many producers, but higher expenses and adverse weather conditions remained key concerns.
Cost pressures have been particularly notable for livestock producers in recent months and higher expenses across the sector are likely to increase demand for financing. Farm income and liquidity remained strong through the end of the year, but improvement slowed in the fourth quarter and bankers in some areas of the region were less optimistic about the outlook for the months ahead.
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