Is Robert Shiller saying you shouldn’t buy farmland?


We’ve all heard stories about amazing profits from owning real estate. Farmland is no exception. For example, the statewide average price for all agricultural land in Montana was $205/acre in 1988 and $900/acre in 2008. Buying farmland in 1988 and selling it in 2008 would have returned about 3.5 times or 350% the initial investment in only twenty years. Sounds good right?

Yale economist Robert Shiller recently threw cold water on those excited about farmland investment in a column for the New York Times provocatively titled “Why Land and Homes Actually Tend to Be Disappointing Investments.” He argues that increases in farmland values are not nearly as impressive if we consider a longer, more representative time period and account for inflation. That is, we must recognize that while Montana farmland sold for just $17 per acre in 1950, you could buy a lot more of other goods with $17 in 1950 too.

Shiller highlighted National Agricultural Statistics Service data showing farmland values have increased just 1.1% per year on average in real terms over the period 1915 to 2015. If we consider the state of Montana specifically, the situation is even more disappointing: Montana farmland values grew at an average annual rate of only 0.8% over the same period. Any investor would be upset if their stock portfolio or their retirement account earned such paltry returns.

What are the true returns to farmland ownership?

In my farm and ranch management class, we learn that farmland returns have two components: the capital gains mentioned above and the profits that owners generate either by renting out the land or farming it themselves. Shiller’s article ignores these other benefits; he considers the merit of investing in farmland for capital gains alone.

Farmers and ranchers know land is a crucial input in their production process. While capital gains are a potential benefit to owning land, no farm or ranch will stay in business long if it can’t use the land to generate year-to-year profits. In fact, farmland derives much its value from the ability to generate profits from agricultural operations.

Declining farm profitability is likely mean slow or no growth in farmland values. In fact, land values are declining in parts of the US midwest. Even if land values fall in Montana, farmers and ranchers who believe their operations are financially viable will continue to buy land despite the capital gains being “disappointing”.

(Photo by is licensed under CC BY 4.0)


About Author

Joseph Janzen is an assistant professor in the Department of Agricultural Economics at Kansas State University, formerly an assistant professor at Montana State University. His research addresses price and trading dynamics in agricultural commodity markets. Some of his recent projects include commodity price shock identification, commodity futures market microstructure and the location of price discovery in world wheat markets, and the influence of international food aid procurement in pulse crop markets. Joe received his Ph.D. in Agricultural and Resource Economics from the University of California, Davis in 2013. He also holds M.Sc. and B.Sc. degrees in Agribusiness and Agricultural Economics from the University of Manitoba. Prior to his doctoral studies, he farmed with his father and brother, growing wheat, canola, oats, and soybeans at St Francois Xavier, Manitoba, Canada.

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