By Gerelyn Terzo, Global AgInvesting Media

U.S. farmland has rarely been as closely watched as it is today. After several years of rapid appreciation and inflation-linked gains, values appear to be entering a different phase, one marked by cooler growth, greater regional divergence and a closer tether to underlying income performance. MetLife Investment Management’s 2025 farmland outlook, entitled “The Road Ahead: U.S. Farmland Value Forecasts,” captures this shift in detail, noting that while average land appreciation remains positive, headwinds like high input costs, softer commodity prices and tighter margins are expected to challenge row-crop profitability in the near term.

Against this backdrop, MetLife Investment Management forecasts moderation rather than contraction at the national level, with some regions poised for further gains, particularly the Delta states (Arkansas, Mississippi and Louisiana) and Lake region, while others face mild declines as fundamentals recalibrate. The report also highlights a record-low cropland rent-to-value ratio of 2.8 percent, highlighting the extent to which appreciation, rather than income, has driven total returns over the past decade.

To unpack these findings, David J. Williams, PhD, Head of Agricultural Research & Strategy at MetLife Investment Management and co-author of the report, spent some time with GAI News. In the following Q&A, Williams shares his perspective on where U.S. farmland values may be headed through 2030, which regions he is watching most closely and how investors should think about risk and opportunity in this cooling but steadfastly resilient market.

1.) GAI News: MetLife Investment Management’s U.S. farmland value forecast points to both long-term tailwinds for U.S. agriculture (rising population, expanding middle class, strong demand for proteins, renewable fuel demand, etc.) as well as near-term headwinds from forces such as softer crop values, painfully elevated input costs, higher interest rates and trade war uncertainty. As you look out to the next three-to-five years, which of these forces do you see as most decisive for farmland values, and what should investors in U.S. farmland be paying closest attention to right now?

David J. Williams: “Among the many moving pieces shaping U.S. farmland values, input expenses stand out as perhaps the most important factor over the next several years. While there’s understandable concern around softer and fluctuating commodity prices, it’s important to recognize that the actual impacts on farm incomes can be quite disparate across the entire Ag landscape. When the prices of major row crops dip, there’s often a plus side for livestock and protein production, since much of that grain goes into animal feed. Similarly, some specialty crops aren’t experiencing the same pressures as row crops, so a blanket statement about prices misses some important nuance. In contrast, input costs like fertilizer, fuel, seed, and machinery have risen across the entire agricultural sector and show little sign of rapidly retreating to pre-pandemic levels. This pressure is felt by virtually every producer, regardless of what crop they’re growing. Easing in these costs would deliver broad-based relief and improve profitability without the side effects of shifting margins from one segment to another.”

2.) GAI News: Your analysis highlights U.S. farmland as a resilient investment that has outpaced inflation, with appreciation contributing over half of cropland returns in the past decade. However, rents have lagged, leading to a historic low for the national average rent-to-value ratio of 2.8 percent and influencing total returns more toward land appreciation than income. This trend seems to persist in the face of tight farmland margins (owning to lower commodity prices and elevated input costs.) Is this trend worrying, and do you expect this divergence between farmland appreciation and rents to persist? If so, could you weigh in on how it might influence investor strategies, such as focusing on regions with stronger cash flows or incorporating additional revenue sources like carbon credits or renewable energy leases?

David J. Williams: “I would say I’m a bit more concerned but not necessarily seeing this trend as a worry today. At a certain point, something has to give, and farmland investment returns need to be drawn from the tangible benefits that the land provides and not just the willingness of someone else to pay more for it later. If we continue to see above average increases in farmland values without a corresponding increase in profitability and rents, then we need to start asking tough questions about how far out of line valuations could become from profitability and what it would take to realign the two.

“As our report indicates, we expect a period of moderation in appreciation and localized declines in specific regions, and I think that cooling in farmland values could be good for the sector in that it would allow for profitability to catch up with valuations. That said, if the trend of compressing cap rates did continue, it would be because investors were willing to pay an increasingly large premium for the diversification benefits and low correlations that farmland provides.

“As for the trend’s implications on potential investment strategy, it will encourage more landowners to consider those lucrative renewable energy lease agreements. We continue to see long-term lease offers in the market that are multiples over the cash rental rates that farm operators will pay. Seeing more acres pulled out of production would also benefit those that weren’t offered a lease as it would result in less production and less competition in the crops that land could produce.”

3.) GAI News: The report points out that row crop returns are leaning more on land value growth than on steady income these days, especially with farmers facing squeezed profits from lower commodity prices and high input costs. Meanwhile, permanent crops in places like the Central Valley are dealing with challenges from water regulations and shifting profits. For institutional investors thinking about where to put their money next, what are the main risk differences and opportunities between row and permanent crops that they should focus on, and do you think we’ll see those gaps narrow or widen as demand for specialty crops like almonds, pistachios, grapes keeps rising?

David J. Williams: “Institutional investors deciding whether to invest in permanent crops or row crops should carefully think about their risk tolerances and return objectives. If you just want a safe low correlation asset and you’re relatively risk averse, then annual cropland is the way to go. If you’re looking for the possibility of above average returns, then permanent crops need to be discussed, but those expected returns come at a cost.

“The risk profile for permanent crops and row crops are very different. The costs to establish an orchard, or purchase one that’s already been established, can amount to multiples over the raw land value. And once established, the value of those biological assets will fluctuate with the profitability of the commodity and may be entirely wiped out if water becomes uneconomical. But that added risk comes with the opportunity for lucrative returns when market fundamentals are in balance.

“My primary concern with permanent crops is the possibility of a supply overhang caused by too many investors planting at one time in the pursuit of high commodity prices. If demand growth doesn’t match that increase in supply, a few years down the line you could have low prices and eventually very costly exits. In the commercial real estate sector this sometimes happens due to apartments taking several years to construct and lease-up, during which time many other developers may be breaking ground. For a permanent crop segment like apples, it can take five years or longer from planting to get full harvests.

“But when the supply side becomes more-or-less fixed, such as what’s happening in the Central Value due to the Sustainable Groundwater Management Act (SGMA), that downside becomes less of a concern. I believe those landowners that had parcels least affected by SGMA and that survive the transition will have the most effective barrier to entry they could ask for that will serve them well in the long run.”

4.) GAI News: Your analysis shows clear regional splits in U.S. farmland appreciation through 2030, with spots like the Delta States and Lake States seemingly well positioned for gains, while areas such as the Northern Plains and Mountain regions could face pullbacks. What do you see as the biggest factors driving these regional variances, and how should investors think about allocating capital when the market is becoming more of a patchwork than a nationwide trend?

David J. Williams: “There were numerous factors that went into determining our outlook, but one of the most significant in explaining the regional variation was trade exposure and relative reliance on foreign export markets. With the recent U.S. – China trade framework we have a lot more clarity on what the trade situation is going to look like over the next several years. The Chinese purchase commitments of 25 million metric tons of soybeans is actually a bit below the historical average. While it’s clear that the 25 MMT is a floor and theoretically we could see an increase, without concrete details on how or why that would happen I wouldn’t assume that we would see an increase in exports at this point in time. The region performing the weakest in our forecast, the Northern Plains, is forecast to decline in part due to the region’s high reliance on shipping by rail to Pacific Northwest ports for final export to China. For the investor, it’s important to understand that while the commodities being grown across the country might look identical, the cash prices and basis can vary significantly due to differences in local supply and demand, and to understand what risks you want to be more or less exposed to.”

5.) GAI News: What stands out to you as the most surprising part of this year’s farmland value outlook and what is bigger investor takeaway?

David J. Williams: “Our expectation of moderation in farmland appreciation is in large part due to the ongoing state of high supplies of major row crops. But there is huge demand potential for grains and oilseeds in the long run through sustainable aviation fuel and higher ethanol blend rates. Brazil is a leader in biofuel usage, with a 30 percent ethanol blend rate – triple the U.S. average. A 30 percent ethanol blend rate in the U.S. would require an additional 11 billion bushels of corn each year. Replacing all domestic aviation fuel usage with ethanol-to-jet based sustainable aviation fuel would require approximately 12.5 billion bushels of corn each year. These are huge numbers that could bolster the sector while reducing its vulnerability to foreign export markets.

“While these demand sources require policy change, and political support for them vary administration to administration, I see them as inevitable. Fossil fuels are a finite resource, and we will run out of them, or exhaust them to the point of economic infeasibility, eventually, and there will always be a need for fuels with the energy density that batteries cannot achieve. Crop yields will continue to increase with technological advancements, and the U.S. will lead the way in expanding global production levels. Over the last 50 years the U.S. average corn yield has more than doubled, from 86.4 to 186 bushels per acre, and they’ll continue to increase. These fuels will be key to providing a use for all those crops – eventually.”

Global AgInvesting would like to thank MetLife Investment Management’s David Williams for his time, analysis and contribution to GAI News.

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