Commodity prices remain too low. Input costs remain too high. Curt Covington believes that something will have to give. And that something is the price of farmland.
Covington is Senior Director of Managed Accounts at AgAmerica Lending, a financial services firm that specializes in agricultural lending and is based in Lakeland, Florida.
“I honestly think that we’re at a bit of a turning point here,” Covington told American Farmland Owner from his Florida office.
Curt Covington bio
AgAmerica Lending-- Senior Director of Managed Accounts
Farmer Mac -- Executive Vice President
Bank of the West – Senior Vice President
Covington sees a reality check coming for those who assume that farmland will continue to appreciate rapidly. And his assessment follows his company’s new report that actually showed the resiliency of farmland values.
“Interest rates, as far as I’m concerned can’t come down fast enough,” Covington said.
Higher borrowing costs magnify the strain farmers already have from low commodity prices. “If you’re having to borrow money on that $4 corn and having to borrow money on $11 beans…it doesn't work at 8 ½ percent interest rate,” he said.
“When your interest rate triples over the last 2 ½ years, it’s taking away directly from the bottom-line margin of that business.”
RELATED: A USDA report in July found that most farms were “well-positioned” despite higher interest rates. See that report here.
The 2024 Farmland Market Trends showed overall farmland up 5% in 2024. The report cited strength in America’s Heartland with Iowa’s 6% increase in farmland values and 5.8% with its neighbor to the west, Nebraska.
“This new data marks a slower growth rate than in previous years, but an increase nonetheless,” the report summarized, “despite high interest rates and tightening farm income contributing to this deceleration.”
Land appreciation, according to the report, continued despite the forces that have Covington concerned longer-term.
“The 2024 report draws lessons from the past, noting that while land prices are influenced by commodity prices, interest rates, and policy changes, the current upward trend is also fueled by investor interest and limited supply.”
The USDA predicted a mix of price changes for farmers in 2024. The persistently higher interest rates led to higher interest expenses, while fertilizer, pesticide, and fuel/oil costs were expected to decline.
Covington doesn’t think farmland’s values can maintain their acceleration with so many factors working against them. “We're in a situation where debt doesn't go away.”
Curt Covington Farmland Connection
Raised on family farm outside of Fresno, California
Grew almonds, grapes, walnuts, and cotton
He believes some of that debt is masked by farmland values that may be unrealistically high. “Debt is a fixed cost,” he said “…that has to be serviced. So, as your margins come down, the cost of that debt becomes a much larger percentage of the take on your profitability.”
Covington said debt challenges are emerging. “We're starting to see some real issues in the marketplace, both on the operating side and on the term real estate debt payments.”
Demand for land has been a positive force to push back against negatives pressures. But he doubts that will continue. “At some point these land prices cannot continue to increase,” Covington said, “…and when that happens, you'll see an immediate drop in in the quality of that asset, meaning the debt to asset ratio is going to continue to rise.”
He added, “there's just honestly, not much you can do about it. And that's why it's so important.”
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