The farmland market in 2025 was influenced by many factors, with some expected to be negative to land prices while others were more supportive. Despite low crop farm incomes, a continued margin squeeze, trade restrictions, and uncertain federal farm policy, the price of good cropland was stable acro ss most regions. In looking ahead to the factors influencing the land market in 2026, there has been some change with several elements appearing a bit less negative and others possibly turning positive. The following are thoughts on the upcoming year in the farmland market from Ag Economic Insights: Liquidity: Working capital for farmers continues to decline, as evidenced in Figure 1, which covers through 2024. Cash flows were challenged again in 2025, which will likely see another drop in working capital. This shrinkage affects producers who want to buy land and are working out the financial means to do so. Less cash in hand brings a bit more caution to a farmer’s buying decisions. On the other hand, investor buyers of farmland are utilizing other resources to fund a farm purchase and are therefore not immediately as affected by the decline in farm working capital. The big questions surrounding the challenge to a crop farmer’s liquidity are to what degree ad hoc and program payments will stem the decline in working capital? And will there be additional ad hoc payments coming in 2026? Figure 1. Changes to working capital over time, 2017-2024.   Supply: The generally lower supply of farmland for sale in 2025 helped support stable land prices as demand was sufficient enough to create an equilibrium. The expectation for 2026 is for the somewhat slower pace of sales to continue as landowners hold onto a safe asset. There is also the potential for a small increase in farms on the market as farmers or lenders face financial stress, which is normal during low farm income periods. Some of these farms will be sold off-market quietly, while others will come to auction. The extent to which there is an increase in stress sales will not be known until late winter or early spring, after the financially challenged producer has exhausted other options to shore up their finances or satisfy their lender. At this juncture, the expected increase in sales due to financial stress is not likely to be enough to alter the equilibrium of supply and demand in the farmland market. The market will know more by planting time. Interest rates: The outlook for how interest rates will influence farmland prices is clouded by three issues. On one side, many expect the Federal Reserve to lower its rates during 2026, but this is not for sure, given the uncertainty of forthcoming economic signals. Secondly, bond markets may or may not follow the Fed if its rates go lower. With challenges facing U.S. government debt needs, AI growth financing, and business debt financing, a risk premium may be added to bond and loan rates, which may keep ag loan rates steady. The third issue is that ag debt is increasing as farm incomes and working capital decrease. The result for many farmers is that they will have less borrowing capacity to finance a farm purchase. Investor buyers of farmland who have cash or other financial resources to make purchases are not directly affected by interest rate challenges. Commodity prices: Everyone involved in any aspect of agriculture is fully aware of the lower commodity prices and higher input costs of the past couple of years. Unfortunately, the outlook is for this to continue in 2026. The wildcards for commodity price improvements include U.S. and world weather in 2026, world crop production levels, trade agreements, and other unknown factors that could influence grain market prices. Farm incomes: The margin squeeze in crop production has been the main story for agriculture during the current downturn. Elevated costs have challenged profits for most types of crops produced in this country, whether commodity or produce. Figure 2, compiled from Purdue University data, shows that it is taking an increasing amount of revenue to maintain a corn/soybean contribution margin of at least $200 per acre. Note that the data does not include ad hoc government payments, which would increase the margin. The takeaway is that margin compression is a real challenge to farm incomes unless commodity prices increase or additional federal farm support is provided. Non-operating landowners will see less of an effect from lower farm incomes in the short run as cash rent levels stay steady or experience only slight declines year to year. Figure 2. Interaction over time of budget revenue and budgeted contribution margins, 1995-2025. Inflation: The level and month-to-month reported changes in inflation are closely watched economic factors in the U.S. economy. With inflation down from its high but staying above Federal Reserve targets (as seen in Figure 3), the future direction is uncertain. The expectation for higher or persistent inflation is one reason investors turn to farmland, as it has been a proven inflation hedge over time. Therefore, inflation is mostly a positive for farmland prices as investor-buyers turn to farmland and non-operating landowners hold onto the real asset. Figure 3. Inflation changes year-over-year, 2015-2025. Cap rates: The usually close relationship between farmland cap rates and the rate on 10-year Treasuries was a consistent one from the mid-1980s until the low-to-zero interest rates following the 2008 financial crisis. Currently, Treasury rates have surged upward while the return, or cap rate, on farmland has continued to slide lower. The low cap rates on farmland have provided a lot of support to the higher land prices experienced during recent years. Can 2% returns on farmland continue in the light of higher interest rates on other investments? There are several competing sides to the cap rate question for farmland. Farmer-buyers are not typically as concerned about cap rates as they have multiple other short- and long-term reasons for purchasing a farm. In addition, many individual investors accept the current low cash return on farmland as they opt to prioritize the desire to have a safe, long-term appreciating asset when buying farmland. Individual and institutional investors will be answering the cap rate question in the coming months and years. Figure 4. Relationship between the implied cap rate and 10-year Treasuries for average-quality Indiana farmland over time, 1980-2020. Future profits: The bifurcated U.S. farm income situation, where crop production profits are low while livestock returns are good, is expected to continue in 2026. Ranchers have benefited the most in the current situation, which has helped support the price of grazing and pastureland. Despite challenges to the profitability of farms in vast swathes of the Grain Belt, which brings more caution to near-term land buying decisions for producers, buying and owning farmland is based on long-term goals and expectations. Anticipated low profits for several more years do nothing to support current land prices. What comes into play is that even though future profits are hard to predict, the common expectation is that farmland will be more valuable in the future. This is evident in a recent Purdue Ag Economy Barometer reading on long-term farmland value expectations, which was at its highest level ever despite everything that is going on in agriculture. Figure 5. Despite income challenges, expectations are for farmland value to continue increasing over time. Source: Purdue Ag Economy Barometer. Investor capital: Individual investors are the most active in this group of farmland buyers. These are investors who have the financial resources to buy and often accumulate land because they see land as a more secure inflation hedging asset that will outperform stocks and bonds in the long run. Many of these individuals live in the state or area where they are buying farms and are familiar with farming. With uncertainties in the current economy, there is also an increase in investor buying of farmland in areas of the Grain Belt, which is helping support land prices. Institutional buyers are not as active as they continue to seek out below-market deals. Long-term, institutional investors will continue to expand farmland ownership as there have been venture capital investments into traditional and alternative farmland funds.  Demand: Demand to own ag land is in flux right now for several reasons. Current stress on crop farm profitability brings fewer and more cautious buyers to a land sale. Yet farmers remain the predominant buyer of farms. If low profitability in crops continues for more years than is expected, farmers’ ability to buy land may be inhibited. On the investor side, as mentioned above, individual buyers seem to be actively pursuing farmland. There has been enough demand for farmland in the marketplace in the past couple of years to offset the lower sales volume. Can this equilibrium last through the current challenges?  Geopolitical: There are consistent uncertainties in the U.S. and world at large that affect U.S. farm profitability. These, and other unforeseen black swan events, bring a heightened level of uncertainty to economic decisions. Right now, instead of bringing stress to the farmland market, this whole area of geopolitical uncertainty adds to the allure of U.S. farmland as a safe, inflation-hedging real asset that will likely be worth more in the future. Final thoughts The factors influencing the land market in 2026 are a mixed bag. Some are short-term focused, while others may play out over the longer run. There are factors that are a challenge for the producer, while at the same time, not affecting the investor-owner of farmland as much or even being positive for their purposes. There are two big questions or factors that could influence the short-term outlook for farmland prices. One is, to what extent will the low profitability of crop producers affect their land buying demand? The second is, to what extent will the financial stress in agriculture bring about extra farm sales? The farmland marketplace is expecting stable-to-slightly lower land values in the short-term, but higher prices in the future. This was evident in the recent Iowa State Land Value Survey shown below. As U.S. agriculture wades through what lies ahead in 2026, the effect on farmland values will be closely watched. Figure 5. Predictions for future farmland values, 2026 and 2030. Source: Iowa State University Extension. ...read more read less