I have written many times about how farmland has been a good investment for at least the last 10 years or so. Most of this data has been gathered from sources directly related to farming, however, I have started to notice a trend about reporting on farmland as an good investment in mainstream sources such as Business Week.
This trend continues with a recent article in the Wall Street Journal about buying farmland for income. The article indicates that by buying farmland, an investor should receive a current 3-5% yield plus up to another 5% in annual price appreciation over the term of the investment. This comes from R. Dennis Moon with US Trust, a unit of Bank of America.
One of the challenges right now is finding quality land. The supply is smaller than usual since farmers and their heirs are keeping the land they otherwise might have sold, in order to book the rental income. The number of qualify farmland for sale appears to be down about 30-40% according to Loyd Brown of Hertz Farm Management, Inc. of Nevada, Iowa. Even medium quality land is down by this amount.
Now that these articles are now starting to appear in main-stream sources, my contrarian sense is that farmland may be starting to peak as an investment for investors. This may end up being good for farmers if the speculative pricing gets eliminated from land values. We can wait and see how it turns out.
Categories: Demographics, Farm Industry Trends, LandTags: farmland as investment
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June 25th, 2010 at 9:38 am
Well, I would say that the challenge is finding good land at a price that makes sense, since it does seem like the supply is there, but the price too many times just doesn’t make economic sense with the price of beans and corn.
Granted, since I’m in Iowa, the most often indicators of ‘quality’ land are the corn suitability rating (csr) and average crop yields per acre. But, those measurements are just of the potential of the land, not how productive it is at any one time, which seems to be why people use soil tests for fertility.
I would also agree that farmland does seem like it has hit an investment peak over the past two years, with the land prices plateauing (and people wanting far too much for poor land), the write ups of it as an investment in multiple major media outlets (bring it to attention of people that frankly, have no idea what they are doing, cheap money (which is a bit harder to obtain) and the current price of the outputs.
Granted, I am not a farmer and have been trying over the past 5 years to educate myself about farming and farmland. Sadly, I have yet to find a concise resource on the topics. Most of my education has come piecemeal from farming boards, some short investment blurbs, bits of books and far too much research on the internet. So, I’m happy to have found this blog for the information it provides.
June 26th, 2010 at 6:25 am
I agree with your comments and appreciate your willingness to comment on my site. I especially enjoy the comments from the readers and look forward to many years of writing about farming.