2025 Spring Homeland | Land values and rent drivers in 2025 

In 1940, land was farmed with horses and national corn production averaged 50 bushels per acre. Land productivity has changed rapidly, thanks to hybrid technology and improved fertilizers and herbicides, all of which have led to higher production on less land. 

Dr. Matt Stockton, professor of Agricultural Economics, University of Nebraska-Lincoln, says land values are tied to productivity and the value of what’s produced. 

 “Farmers don’t necessarily purchase land to break even,” said Stockton. “The buyer depends on inflation and productivity to catch up and surpass. Over time, when land is paid off, the buyer builds equity in the land and it pays for itself.”  

Volatility and market changes drive land value increases. Prices in 2024 were higher in spring than in fall, and Stockton doesn’t think that will change significantly. “People who have some cash and want to farm will want to purchase land,” he said. “They’re depending on the rest of their farm to pay for the land. That drives prices as well.” The rise of new land purchasers, including foreign investors and newcomers to agriculture who believe land is a worthwhile investment, also leads to increased land prices. 

“Pasture value is usually less than land used for crop production,” said Stockton. “Cash flows are different depending on land suitability. Land values follow the cattle market, and they usually follow behind.” 

Contraction and expansion of the cowherd is a precursor to what happens with land prices. As the herd expands, prices eventually go down. Stockton says no one can predict exactly when that will happen, but land values are affected. With the current positive cattle market, location is a bigger driver for pasture than for cropland. 

Low cattle inventory means a strong cattle market. “Inventory numbers are down because there was depopulation and cattle prices were not good five or six years ago,” said Stockton. “Now it looks great and people are sitting flush.”  

Stockton says herd expansion means purchasing heifers that would have gone to a feedlot. With retained heifers and higher cow prices, buyers believe they must capture the market quickly because the market may not remain the same. 

The result? Cattle prices go up and down, but perhaps not down as far down as in the past, which points to an upward market trend. Stockton explains that this cycle, which occurs approximately every ten years, is one of the most famous cycles in economics. 

“What happens in Nebraska, where we’re already full of cattle, the more cattle are put here and the more are produced, the more inputs will be competed for,” said Stockton. “With increased competition for resources, landowners can charge more.” 

Agriculture has the problem of fixity of assets, which many industries don’t have. When someone has paid a lot for a productive cow then prices drop, the owner will try to cover costs to stay in business long enough to see market improvement. 

“Get in the cattle industry when prices are really depressed,” said Stockton. “Save money, do your best and when things hit bottom, get in because you don’t pay much for cattle and it’s easy to find a place for them to go. Once you have a (rental) contract, it’s easier to keep than to find a new one.” 

Stockton explains that the value of what land can produce is capitalized into the value of the land. “That’s how land values escalate,” he said. “There’s also price stickiness, which is the tendency that once it goes up, it doesn’t go down. It takes a lot more effort to get prices down than it is to push prices up. Stickiness happens because people don’t want to take a loss. Sentimental value also plays a role.” 

Farmers and ranchers who are making money manage to cope with high land and rental prices. They’ll figure out how to afford land, which keeps prices high. “Land values are based on productivity and what people think they can do with the land, and who’s going to buy,” said Stockton. “Supply and demand are the drivers. Sometimes land is over-demanded for what the land can do, and when the demand isn’t there, prices go down.” 

Those who are in farming for the long term tend to purchase farmland only when there’s an opportunity. Stockton says that in some cases, they pay more than it’s worth if it’s next to their existing property because it fits their farm and they want it, and this distorts local land prices. 

The most common option for those who need land is cash rent, a trend Stockton says will continue despite the risk. “Cash rent should represent what the renter expects, on average, to get from the land,” he said. “The owner looks at taxes, and if taxes go up, he wants to keep money flow the same. A lot of landowners think of themselves and taxes, not in terms of what can a farmer afford to pay. This is where we get the conflict between landowners and land renters.” 

The land renter has a different perspective because land values may have risen as crop prices dropped. “Productivity hasn’t gone up, but the value of his crop has gone down and the renter still pays a constant cash amount,” said Stockton. “He wants to pay less than he had been because he, too, wants to make the same amount of money. This is why landowners and renters sometimes don’t see eye to eye.” 

 
An agreement that distributes risk between the landowner and the renter can work if it’s done correctly. The renter shares a portion of the crop to sell, and if prices are good, both parties share equal risk. Commodity prices are related to land prices, so when productivity is good and rising, it’s capitalized into the land value. All the variable inputs go up and the farmer or rancher uses more fertilizer, more water, and more expensive seed to increase productivity. But costs are still lower than profit, so having more land would translate to additional profit. 

Stockton expects cash rent values will continue to rise, but variable contracts are probably better for everyone because the risk is shared between the owner and renter. “If it was completely risk-free to farm and the renter knew yields and prices, cash rent would be fair,” he said. “But if the renter doesn’t know the risk, they want to negotiate for a lower price because prices may go down.” 

Elections impact the way people feel about the economy. Stockton believes farmers will be more confident in doing business but noted we’re paying more than one trillion dollars on just the debt. “That means there’s a trillion dollars we can’t even access and use to pay back before we can even start with the budget,” he said. “At the rate it’s growing, in about four to five years, the government won’t be able to do anything without borrowing and we’ll be further in debt. If it doesn’t stop, we’re going to go bankrupt and there will be bigger problems.” 

Stockton says the current administration is trying to avoid problems, but it’ll be impossible to avoid them all. “Everybody wants to balance the budget but nobody wants to take a cut,” he said. “That’s the hard thing, and I think that’s why the administration is moving so fast.”