Harvesting Returns in a Changing Rate Cycle: Farmland’s Balance of Income and Growth

With Q4 2025 underway, investors continue to navigate a market shaped by still-elevated interest rates and persistent inflationary pressures. The Federal Reserve has already begun cutting rates and has signaled two additional reductions by year-end, suggesting a turn toward a more dovish cycle. Even so, bond yields remain at their highest levels in more than a decade, private credit has surged in popularity, and commercial real estate is still working through refinancing stress. For those allocating capital, the question is no longer just how to find yield — it’s how to balance income with growth, and how to preserve wealth across cycles.

Farmland, though less discussed than stocks or bonds, stands out as one of the few asset classes that consistently provides both. It delivers predictable income through leases or crop sales while also offering long-term appreciation in land values. This dual nature positions farmland differently from many yield alternatives and helps explain its growing appeal to investors seeking durable returns in today’s shifting rate environment. Its resilience has historically made it valuable in high-rate regimes, while its long-term appreciation has helped support portfolios as rates decline.

Income and Growth in a Single Allocation

Farmland’s return profile is unusual because it combines steady cash income with the potential for capital gains. Lease agreements, whether fixed cash rent or revenue-sharing structures, provide reliable cash flows year to year. Over longer horizons, appreciation in land values adds a second layer of return, driven by factors such as productivity improvements, scarcity of high-quality acreage, and rising global demand for food and fiber.

This dual-engine structure contrasts with most yield strategies. Bonds deliver income but little growth, and their prices are highly sensitive to shifts in interest rates — particularly as markets transition from a high- to lower-rate cycle. Private credit can offer higher yields but with greater default and liquidity risk. Commercial real estate can deliver both rent and appreciation, but many sectors face structural headwinds.

A Track Record of Consistency

The long-term numbers tell the story. Since 1992, the NCREIF Farmland Index has delivered annualized total returns of ~10%^[1], with negative years few and far between. In more than three decades, there have been only two calendar years of negative performance^[2] — a level of consistency not often found in real assets.

That stability comes in part from the biological cycle of farming. Crops must be planted and harvested, regardless of economic sentiment, which supports ongoing demand for land use. For investors, this has translated into steady income and smoother return patterns compared with equities, credit, or commercial property. Even when capital appreciation slows — as it did in 2024, when permanent cropland posted a -10.18% total return — income returns have remained positive, cushioning overall performance and underscoring farmland’s role as a stabilizer across rate environments.

How Farmland Generates Income

Farmland generates cash flow primarily through leases. The most common arrangement, cash rent, involves tenants paying a fixed fee per acre, much like a rental property. This provides predictable annual income regardless of yield or commodity prices. Revenue-sharing leases, by contrast, allow landowners to participate directly in production or sales. They introduce more variability but can offer upside in strong crop years or high-price environments.

In addition to lease income, appreciation in land values has been a meaningful driver of returns. According to USDA data, U.S. farm real estate averaged $4,170 per acre in 2025, up 4.2 percent from the prior year. While this is a slower pace than the double-digit gains seen earlier in the decade, it underscores the steady demand for productive land and its role as a scarce, inflation-sensitive asset.^[3]

Risks to Keep in Mind

Farmland is not without challenges. Input costs for fertilizer, fuel, and labor remain elevated, and commodity prices have softened in recent quarters, putting pressure on farmer margins. The Federal Reserve Bank of Kansas City has noted a modest deterioration in farm financial conditions over the past year, which can affect lease negotiations.

Permanent crop regions, particularly those reliant on scarce water resources, have also seen volatility in land values. And unlike stocks or bonds, farmland is more illiquid; transactions involve meaningful time, due diligence, and cost. These risks mean farmland is not a fit-all allocation, but rather one that requires careful structuring, diversification across crops and regions, and professional management.

Why Farmland Still Stands Out

Even with these risks, farmland maintains advantages that other yield alternatives struggle to replicate. Private credit is cyclical and exposed to defaults, while bonds may see real returns eroded if inflation remains sticky. Commercial real estate is undergoing structural shifts in office and retail demand. By contrast, farmland’s role in producing essential goods ensures durable long-term demand, while its dual return drivers provide both income and growth potential.

For accredited investors, farmland offers an accessible way to complement portfolios with an asset that has historically delivered equity-like returns with bond-like stability^[4]. For institutions, it serves as a long-duration real asset with low correlation to traditional markets, supporting diversification at the portfolio level.

Key Dynamics That Influence Farmland Performance

Several dynamics influence how farmland performs relative to other asset classes. Interest rates shape comparative yields and capital flows across markets. USDA data show farmland values have continued to rise, though at a slower pace in recent years, underscoring the importance of lease income as a steady return driver. Regional differences in climate resilience, water rights, and regulatory environments also contribute to performance dispersion. Historically, farmland’s low correlation with equities and credit has helped it serve as a stabilizer during periods of macroeconomic volatility.

What This Means for Investors

Farmland’s relevance in today’s shifting rate environment stems from its ability to serve as both an income-generating and growth-oriented asset. For accredited individuals, it can offer a tangible, inflation-sensitive way to diversify beyond traditional equities and bonds while preserving long-term wealth. For institutions, it represents a durable, long-duration allocation that has historically combined steady income with appreciation and low volatility.

As investors finalize allocations heading into 2026, farmland remains an asset that has historically balanced yield and growth.