It's been an interesting few years for the farmland market, with inflation and interest rates largely driving trends. But this year is different as new trends are emerging in the farmland market, including lower farm income and uncertainty surrounding tariffs and trade, the farm bill and renewable fuels/energy.
"Two years ago, we really focused on interest rates. That was a pretty easy conversation. And then last year we focused on inflation, and frankly, that was a pretty easy conversation too. We knew that things would somehow eventually calm down a bit," says Bruce Sherrick, professor and director of the TIAA Center for Farmland Research. "This year, we focused a little bit more on income. To be honest, that's a lot tougher to predict."
Considering the combination of lower commodity prices and farm income, it makes sense that land values have softened in 2024. What might be more surprising, however, is that they haven't declined more.
"When you look at just commodity prices alone and interest rates alone, I think a lot of folks would have anticipated that land values would probably soften more so than what a lot of the survey data and the USDA numbers are showing," says Steve Bruere, president of Peoples Company. "So, why aren't land values declining to the degree that maybe your spreadsheet might show that they would? The are themes such as ecosystem services, natural capital, wind and solar, carbon."
Iowa State University's (ISU) recent land value survey found farmland values in the state decreased 3.1%, or $369, to $11,467 per acre, and 75 of Iowa's 99 counties showed a decrease in land values. Bruere believes the decline of land values in the state might be closer to 10% to 15%, based on transactions he's seen, and there's likely still farther to go.
"The markets have probably softened more than what the Iowa state survey would reflect," he says. "I think everybody is incredibly bullish about where the land markets headed over the long haul, but in the short term, there's some adjustments happening around commodity prices and interest rates.
This sentiment is echoed by respondents to ISU's survey, as 58% expect a decline in values over the next year while 80% believe land values will increase over the next five years.
"This long-term confidence aligns with expectations of more stable or slightly rising corn and soybean prices, suggesting that while the short-term outlook may be challenging, the market's foundation remains strong," says ISU survey author Rabail Chandio.
"When you start to look at some of the stability of returns, you can start to call out those regions where you have more diversity in crop production. The Pacific Northwest jumps out, whereas in the corn belt, you can see a bit of a tracking along some of those commodity cycles," says Dave Muth, Peoples Company's director of capital markets. "In 2025, you can plan on farmland across different regions and different systems needing to be looked at more independently."
Livestock's role in a region's income also becomes clearer.
"In 2024, animals and livestock products exceeded, in terms of receipts, crops for the first time. This is a major change because when commodity prices go down, feed prices for livestock also go down," Sherrick says. "This is having differential effects in supporting farmland values moving forward again."
3 Takeaways For The Future
The Peoples Company team gives the following predictions for what to expect in the farmland market moving forward.
1. Land values are increasing long term, but the next year could be more unpredictable.
2. Record-breaking sales will likely be a bidding war between neighbors who wanted the land instead of a new trend.
3. Voluntarily bringing land to market just because a neighbor had a huge sale seems to be over - at least for now.
"I wouldn't be surprised to see a little bit of a pullback, but I think the pullback will still need to be precipitated by some policy or world event that is not present now," Sherrick says. "Otherwise, I would expect it to be essentially flat. There's a lot of folks who would like to own farmland still, so I'm not expecting a huge correction."
