May 2026
The USDA recently released data indicating that 2025 farmland averaged $4,350 per acre, an increase of 4.3% over 2024 values (1.9% when adjusted for inflation). This data underpins the story that farmland is a stable, consistently appreciating, inflation-hedging asset.
But when you look under the hood, the story of farmland can’t be told through averages. In fact, the farmland asset class is really a mash-up of multiple different asset classes and regional centers that are currently behaving quite differently: annual cropland and permanent cropland (plus pastureland, which is excluded from this analysis but makes up 25-30% of total US farmland real estate value). Annual cropland operates on shorter production cycles, carries lower CapEx requirements, has a broader buyer pool, and benefits from returns that are often supported by federal subsidies and crop insurance and, recently, biofuel demand. On the other hand, permanent cropland involves multi-year production cycles tied to tree, bush or vine maturity, higher CapEx, a narrower and more specialized buyer pool, and geographic concentration within the Western US. These two categories are distinct enough in their risk profiles and return drivers that averaging them together can obscure more than it reveals.
To get a better sense of annual versus permanent cropland, we can look at national Council of Real Estate Investment Fiduciaries (“NCREIF”) data, which measures $16B of privately held farmland. Total returns across permanent cropland and annual cropland generally stayed positive and moved in the same direction during the 30-year period from 1990-2020, with permanent cropland exhibiting higher volatility. That changed in 2020, when permanent cropland started to decline and dipped into negative territory. In 2023, permanent cropland had its first negative returning year in nearly 25 years. Over the past year, permanent cropland returns have started to rebound while annual returns dipped.
The returns story comes into sharper focus when isolating income returns (cash yield from operations) from capital returns (change in land value).
Annual cropland’s strong long-term return story comes from the income component, which have declined from ~6% in the early 1990s to ~3% today. This decline reflects cap rate compression, meaning land values rose faster than the income the land produces. Land values were driven up by a rush of capital into farmland due to declining interest rates and institutional attention. This is reflected in the high capital returns for annual cropland in 2004-06, 2011-13, and 2021-22. These are now starting to decelerate: from 10% in 2022 to 6% in 2023, 2.5% in 2024, and 0.5% in 2025, as cap rates stabilize and potentially start to expand again.
On the permanent cropland side, the 2000s and 2010s saw a boom in both income and capital returns as demand for tree nuts and specialty crops surged faster than supply could respond, thus driving up prices and land values. Between 2003 & 2014, income returns exceeded 10% in 10 of 12 years. Once all the new acreage came online, however, along with Sustainable Groundwater Management Act (“SGMA”) legislation in California (which limits water use implementation), wine grapes going through a generational rightsizing, and COVID halting exports, income returns started declining from a peak of 17.67% to a trough of 1.7% in 2024. While land values stayed sticky for a handful of years due to lower transaction volume, they also started to decline as the appraisal market caught up, exhibiting mildly negative returns since 2019 and really resetting between 2023-25 with returns of -5.9%, -12.3%, and -8.7% respectively.
There are early signs the trough may be passing, as both capital returns and income returns are starting to improve with farmers pulling out orchards and vineyards to right size supply.
Why this matters
The headline farmland number tells a tidy tale of a low volatility, steadily appreciating asset class that serves as an inflation hedge. But farmland values are a combination of both land appreciation and yield across two structurally different asset classes. Farmland can be a great addition to any portfolio, but a rigorous approach might consider 1) an investor’s risk and return appetite, 2) what diversification in a farmland allocation actually means, and 3) where each segment exists in its cycle, before deciding what to invest in. The next decade of farmland investing will likely reward investors who think about farmland as multiple asset classes.
The views expressed are those of the author and do not constitute investment advice. Past performance is not indicative of future results.
References
- NCREIF Farmland Index (1990-2025)
- Callahan, S. (2026, April). Land Use, Land Value & Tenure – Farmland Value. U.S. Department of Agriculture, Economic Research Service.