2025 Farmland Outlook
A look at the historical impact of policy decisions on farmland values, farmland pricing trends through Q4 2024, and the importance of dispersion for the farmland asset class
Key Points:
- History has shown that policy decisions, including tariffs, have not had a material impact on farmland value trends.
- Farmland values remained resilient in 2024, despite headwinds
- Beyond political changes, farmland values have remained resilient through numerous financial crises, recessions, interest rate increases and geopolitical events.
- The high dispersion of farmland values in a given market can create opportunities
The Impact of Policy Decisions - Using History as a Guide
The upcoming change in administration has prompted a lot of investor questions about the potential implications for the farmland asset class. The consensus viewpoint is that the potential for trade wars and labor issues from a second Trump term could create risk for agriculture. While this could be the case, the historical precedent of 2017 - 2020 shows there is more to consider than first order effects. Using historical precedent as a guide, the incoming administration’s historical policies have been generally viewed as positive for U.S. farmers.
The incoming administration did have a negative impact on crop receipts for farmers of certain commodity row crops in the 2017 - 2020 timeframe. However, the record high prices for key commodity row crops such as corn and soybeans in 2012 as a result of increased demand and drought conditions in key markets, followed by increased global plantings and favorable weather in 2013-2016, drove the negative impact to cash receipts ahead of the November 2016 election results. For example, corn cash receipts fell (35%) from 2012 to 2016. Total cash crop receipts in 2017 - 2020 averaged $196.8 billion, effectively flat with the $195.8 billion of 2016. Said differently, the global factors of supply and demand appear to have vastly outweighed the impact of administrative policy as it pertains to crop receipts, as shown in Figure 1. More importantly, farmland values do not care about politics, as we have discussed in previous articles.
Figure 1 - Cash Crop Receipts
Source: USDA ERS, AcreTrader
Based on history, the incoming administration’s policies of the next four years may have a muted impact on farmers. While tariffs get all the headlines, the reality is that farmers' income actually improved 2017 - 2020 as a result of direct federal payments.
Figure 2 - Federal Government Direct Farm Program Payments
Source: USDA ERS, AcreTrader
While crop cash receipts during the first Trump administration were down 4% compared to the previous 4 years, this was more than offset by federal government direct farm program payments. When cash receipts for crops are combined with federal government direct farm program payments, the total receipts to farmers were up 8% in 2017-2020 vs. 2013-2016 and increased 37% from 2017 to 2020.
Figure 3 - Cash Crop Receipts + Federal Government Direct Payments
Source: USDA ERS, AcreTrader
Finally, animal spirits matter. The sentiment of farmers and rural America has changed markedly since the election, as demonstrated in Purdue University's Ag Economy Barometer that showed farmer sentiment reached its highest level since May 2021 in the month following the recent election. Given the historical improvement in farmer income 2017 - 2020, the improved sentiment from many farmers may be rational.
Farmland Prices Remained Resilient in 2024, Despite Headwinds
As shown in Figure 1 above, cash receipts for crops were down (4.1%) in 2023 and are projected to be down (9.2%) in 2024. This is primarily due to weaker pricing in key commodities such as corn and soybeans. For example, corn prices are down (45%) from the summer 2022 peak, while soybean prices are down (41%) from the summer 2022 peak.
Figure 4 below shows Acres.com transaction data for 8 key states that make up the Corn Belt, designated here as the “Heartland.” There are almost 82,000 farmland transactions represented in this data set. We then took the price per tillable acre and divided it by the farm’s NCCPI score to compare like for like transactions over time. For reference, the National Commodity Crop Productivity Index (NCCPI) was developed by the USDA’s NRCS and is meant to assess the inherent productivity of farmland soil across the United States. While there are drawbacks to NCCPI, our goal in this exercise is to make a like for like comparison over time.
Figure 4 - Heartland Prices Remained Resilient; Acres.com Transaction Data
Source: Acres, AcreTrader
Despite the significant headwinds of lower commodity prices, higher input costs, and higher interest rates, farmland values have remained resilient. For example, since Q2 2022 when corn and soybean prices peaked, inflation accelerated, and federal funds rates increased at the fastest pace on record, the average price paid per NCCPI point for the 8 states represented above increased 5.6% as of Q4 2024. This resiliency in the face of significant headwinds represents a key attribute for farmland as an asset.
Farmland investments should be viewed as long-term in nature. When zooming out and looking at farmland values over a longer time frame, the historical data shows that farmland values have remained resilient through political changes, financial crises and recessions, interest rate increases and geopolitical events. One of the most important aspects of farmland as an asset class is its underlying supply and demand dynamics, which we have discussed in previous articles. No amount of capital can economically increase the supply of investment quality farmland in this country. This is a key tenet of farmland vs. other asset classes. An increase in capital can add multifamily or single-family residential units to a local market until it is oversupplied. This is not the case with farmland and a primary reason why the capital cycle breaks down when applied to farmland.
Figure 5 - Farmland Prices Historically Resilient; Excludes Lease Income
Source: USDA, AcreTrader
High Dispersion of Farmland Values Creates Opportunities in Soft Markets
While it is standard to use averages to discuss historical appreciation rates, the reality in practice is that farmland has historically shown significant variability around the average in each given market. This is a key feature of the asset class in our opinion and a critical component to driving positive alpha, or the outperformance of a given farmland asset relative to the benchmark. We believe that the relatively softer farmland market of late has increased the dispersion around average prices and opened opportunities to purchase investment quality farmland at discounts to average prices, after adjusting for the recent market softening.
This concept is highly intuitive. Simply put, buying below market value can generate returns above market returns. However, a lack of data has made this frustratingly difficult to demonstrate until recently. In Figure 6 below we utilize Acres.com data to isolate actual farmland transactions in six counties in Central Illinois and compare that to our historical purchases in these same six counties. Farmland is inherently a heterogeneous asset, however this is one of the more homogenous farmland markets in the country with high quality soils, consistent crop rotations, a strong tenant base and significant public listings and auctions. These data points represent actual transactions and not simply annual surveys. We then look at these transactions on a price per farmable acre divided by the Productivity Index of the soil to make a comparable cost per point of productivity index. There are nearly 1,000 transactions represented in this analysis.
Figure 6 - Better Data + Access = Better Purchase Opportunities
Source: Acres, AcreTrader
It is important to understand real time market conditions in order to buy farmland below market. Utilizing Acres data, based on transactions, it is clear that the farmland market has softened from the appreciation rates prior to 2024. When combining AcreTrader’s sourcing network with better real time data, it can present opportunities to purchase investment quality farmland below market values.
Our Outlook for 2025
We believe that it is a fool's errand to attempt to forecast commodity prices, weather, input costs or government policies in 2025. Our only prediction is that all of the above may be volatile as they have been in the past, while we expect asset values for investment quality cropland to be much less so. Though past performance is no guarantee of future results. The combination of a shrinking supply of one of our country’s greatest natural resources coupled with increasing demand on this resource has historically helped drive steady increases in asset value. Those with unique access and unique data may be well positioned to capitalize through all market conditions. We will continue to keep our thumb on the pulse of land market values in core farming regions and be quick to act when opportunity arises.
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