Farmland investing: scarce supply may yield bountiful opportunities

The inflation versus growth picture remains complicated… The Personal Consumption Expenditures (PCE) Price index came in slightly higher than expected at 0.2% for July and 3.7% year over year. Core PCE, which excludes the volatile food and energy categories and has long been the Federal Reserve’s preferred inflation barometer, was also a smidge higher than expected, just north of 0.2% for the month and 3.3% year over year — unchanged from June and still well above the Fed’s 2% target. U.S. growth data released last week offered little evidence that the economy has been accelerating significantly. In fact, the government’s second estimate of second-quarter real GDP growth showed expansion of +1.5% (annualized), the same as the initial estimate and slower than the first quarter’s +2.1%. Taken together, stubbornly elevated inflation and moderating growth continue to leave policymakers with a delicate balancing act: maintaining sufficient restraint to return inflation toward target without further weakening an economy that has already shifted into a lower gear.

…leading to Treasury market tension. The long end of the U.S. Treasury yield curve has stayed elevated amid persistent inflation, geopolitical conflict, fiscal concerns and the outlook for monetary policy. Treasury Secretary Scott Bessent has sought to alleviate some of that pressure by announcing plans to at least double the size of Treasury buyback operations for longer-dated securities. The initial decline in yields following his announcement proved short-lived, however, as investors questioned whether purchases of this scale could meaningfully alter the fundamental forces driving long-term rates. In other words, policymakers may have some influence at the margins, but the bond market still demands compensation for perceived risks in the environment.

Despite near-term uncertainty about inflation and its implications for monetary policy, we continue to expect inflation to moderate over time (Figure 1). Our forecast anticipates core PCE trending lower through 2027, broadly consistent with the direction of both consensus expectations and the Fed’s own projections. That said, the path is unlikely to be linear, particularly given ongoing volatility in global energy markets.

For investors, this backdrop reinforces the importance of considering portfolio allocations, including real assets such as farmland, that may provide differentiated sources of return while offering potential resilience against inflation.

Portfolio considerations

The investment case for U.S. farmland is increasingly about scarcity. America’s farms produce crops that are vital to food systems across the globe. As worldwide food demand keeps rising, the ongoing gradual loss of farmland over time, as well as the inherent inability to create new high-quality farmland, should support both asset values and the strategic importance of well-located, productive acreage.

Between 2002 and 2022, the U.S. lost about 52 million acres of farmland — more than a million acres every year, on average. Development pressures related to urbanization, renewable energy, infrastructure and artificial intelligence (AI) data center buildouts are driving land-use changes. Worsening water scarcity in places like California is also accelerating the loss of productive farmland. Per research from the USDA National Agricultural Statistics Service, if current trends continue, available U.S. farmland could drop by 15%, or 56 million acres, by 2050. In a more pronounced high-economic-growth scenario, those declines could reach 25%, or 94 million acres (Figure 2).

This scarcity dynamic distinguishes farmland from many other real assets. Unlike real estate or infrastructure, the supply of productive farmland does not increase in response to rising demand. The high-quality soils, water availability and climate conditions required for crop growth cannot be manufactured. Once farmland is paved over and converted to non-agricultural use, it is nearly impossible to recover.

From an investment perspective, the increasingly constrained supply of farmland should support long-term capital appreciation. Additionally, a smaller and more competitive land base increases the economic value of productivity gains. Improvements in yields, water efficiency, crop mix and operating practices can potentially enhance income generation while reinforcing the scarcity premium embedded in the asset class.

In our view, the long-term proposition for investors is clear: Farmland combines finite supply and essential demand, which can offer income generation, inflation mitigation and a low correlation to traditional economic cycles. In a market where productive land is becoming harder to find and impossible to replace, we consider high-quality U.S. farmland worthy of a strategic allocation within diversified, longterm investment portfolios.

Nuveen’s Global Investment Committee (GIC) brings together the most senior investors from across our platform of core and specialist capabilities, including all public and private markets.

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