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High Interest Rates Slowing Growth in Demand for Farmland

High interest rates are starting to affect farmland demand. Paul Shadegg, senior vice president of real estate options for Farmers National Company, says the slowing demand first showed up at the end of last year.

“We saw a little bit of a downturn or softening as we entered the fourth quarter. Nothing dramatic, but the first thing we saw some of those lower classes of land were maybe not getting bid on quite as strongly and didn’t have quite the buyer demand that the higher quality parcels did. But when we look at it overall, and we look at who our land buyers have been the last three years, the operators still had pretty strong equity positions, and the commodity markets were still up. Now we look at it and say, ‘Well, what’s changed,.’ Interest rates are up, and equity is not quite as strong as it was. Commodities are still pretty strong, but then we look at inputs quite a bit higher, so definitely, some dynamics have changed. So, I would anticipate that we’re going to continue to see some softening. I don’t know that we’re going to see anything drop dramatically.”

Schadegg says FNC is still seeing strong demand for high-quality farmland, and there are a couple of reasons behind that.

“High quality has always sold really well. But what we also look at is the limited number of properties that are being offered for sale. And then you couple with that, we have probably a little increase in investor interest right at the moment, and I think that the stock market and interest rates and all this bank uncertainty are going to help drive that just a little bit. Those investors are not going to go pay a premium, but they’re certainly going to help us hold that floor on value.”

For now, farmers are still the top buyers of farmland. Schadegg; “But I think you’re gonna see that dip a little bit, and it’s going to be taken up by the investors. Not a huge swing, but I think there are investors who see some opportunity in return on investment as that land value goes down, and commodity markets and cash rents are still pretty strong. That improves their position on the return, so that piques their interest a little bit and maybe causes them to be a little more active in the market.”

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