By Gerelyn Terzo, Global AgInvesting Media
AgIS Capital’s 2025 State of the Market Report paints a picture of a rapidly transforming agricultural landscape, one that simultaneously generates compelling challenges and significant opportunities for investors. While some market segments face headwinds, others demonstrate resilience and potential for growth, commanding a nuanced approach from those looking to cultivate returns in this important asset class.
The agricultural sector is expected to see a substantial increase in financial returns in 2025. Real net farm income (NFI) is forecast to rise by 28.5 percent to $180.1 billion, due to expectations of both higher income and lower production expenses. Based on real terms, this income level would represent the third highest since 1960. The 2025 forecast is considerably higher than historical performances, exceeding the 1960-2024 average by 77.4 percent and the 2010-2024 average by nearly 40 percent. The past five years have consistently shown high levels of net farm income, ranking among the top eight in many decades.
Chart courtesy of AgIS Capital
Nevertheless, this positive outlook is tempered by a decline in agricultural exports, exacerbated by the administration’s tariffs, a strong dollar and caution from the Federal Reserve, which is navigating a complex economic environment. U.S. agricultural exports are expected to fall by 3.3 percent to $170 billion, owing largely to lower values for key commodities like soybeans, beef and sorghum, among others.
The Corn Belt Annual Cropland Index showed a total return of
1.7 percent in 2024, reflecting an all-time low income return of 2.2 percent and a negative capital return of -0.5 percent. Through a wider lens, the Corn Belt Annual Cropland Capital Index has seen a significant increase of 52.6 percent over the past four years, contrasting with a more modest 11.9 percent rise in the Income Index for the same period. Notably, half of the annual cropland regional indices, representing a substantial 69.6 percent of the Annual Cropland Index’s value, recorded their lowest income rates of return since their inception.
In contrast, permanent crops, such as pistachios and almonds, have faced a more turbulent period. The NCREIF Permanent Cropland Index saw a notable increase in holdings to 370 properties, primarily due to the addition of AgIS Capital’s assets, catapulting total market value to $6.3 billion. But the index recorded its worst performance since its inception, with a -10.2 percent total return, stemming from negative capital returns. While income returns remained positive, this is the second consecutive year of overall losses for the index.
On the flip side, the report emphasizes that the underlying demand for these crops remains intact. As supply chain issues are resolved and water management strategies improve, particularly in light of California’s Sustainable Groundwater Management Act (SGMA), the long-term prospects for permanent cropland investments appear promising.
Water management emerges as a critical theme in the report. The SGMA, in particular, is expected to have a significant impact on the long-term viability of almond and pistachio orchards in California, potentially leading to increased return variance for assets in these indices. This underscores the growing importance of sustainable water practices in the agricultural sector.
The future of cropland investments hinges on a complex interplay of factors. While annual cropland has shown resilience, its continued appreciation may continue to be challenged by lower commodity prices, elevated interest rates and the willingness of tenant farmers to pay higher rents. The performance of permanent crops is expected to improve as supply issues are resolved and water constraints are managed effectively.
Despite the uncertainties, the report suggests that opportunities exist for investors who can navigate the evolving landscape. A keen understanding of market dynamics, government policies and environmental regulations is key for making informed decisions.
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