FARMLAND: IN DEMAND
As the volatility of the U.S. stock market continues, investors are seeking atypical assets – the latest trend being farmland. Favored by high-net-worth investors for the past 25 years, farmland is a low risk, long-term investment, offering solid returns and an opportunity to diversify one’s portfolio. Gaining more speed after the 2008 financial crisis, farmland investment funds have grown by 900% since 2005, and according to the The U.S. Department of Agriculture, the average price of an acre of U.S. cropland has increased by close to 75% during the same period. Recent stock market swings and record breaking inflation increases make farmland investments all that more appealing. Agricultural Real Estate founder, Sam Zell, spoke at December’s Land Investment Expo about the agriculture industry all boiling down to supply and demand. He was quoted as saying “In the world market, the amount of available farmland is not growing, so as an investment, farmland isn’t a bad choice.” Zell also commented that prices of farmland tend to be higher due to the emotional attachment of this type of property. Farm investment platform, FarmTogether commented on the trend, saying:
“The increasing scarcity of farmland and its lack of correlation with other asset classes makes it an exceptionally strong diversification tool for virtually any portfolio. This has driven institutions to significantly increase their investments in farmland over the last 30 years.”
Traditionally an investment for long term wealth, this inflation resistant investment is great for diversifying a portfolio – with little correlation to more conventional assets. Historically it has provided stable returns, according to agricultural economist Todd Kueth of Purdue University, averaging 10.9% over the last two decades. Now, with record inflation and the limited supply of inventory, farmland is more attractive than ever to the wealthy set, such as Bill & Melinda Gates – the largest owners of US farmland. The Gates portfolio is reported to include over 240,000 acres in 19 states. The fragmented farmland market, mostly family owned and with a high minimum investment, has been out of reach for the average investor, with many transactions happening off-market, rather than on public databases.
New ag investment crowdfunding platforms and EFT’s have recently opened the farmland market to a new group of investors, but seem to carry more risk than private ownership.Purdue’s Kuethe noted that prices of most U.S. farmland start around $800,000 to $1 million and that not all farmland buyers are investors, but “often experienced farmers looking to expand, or people raised on or around farms.”
In a recent study, the U.S. Agriculture Department concluded that the value of U.S. farm real estate grew 7% in June from a year earlier, to an average $3,380 an acre, the biggest increase since 2014, as reported in the New York Times. Farmland value is closely tied to agriculture as a commodity, with farming income affected by increases in commodity prices and interest rates, all the signs are positive for farmland investment or ownership.
As inventory challenges remain, understanding the business of farming and being able to navigate the competitive nature of the current real estate market is key to a successful transaction. Western Ranch Broker’s Jim Toth, who’s been immersed in both real estate and the ag business for several decades, has seen an incredible uptake in the demand for farmland this year. His industry experience brings insights and connections in the farmland real estate market – and valuable access to private investment and ownership opportunities. To connect with Jim on the agricultural real estate market and current opportunities, please contact him directly:
Western Ranch Brokers