Are Investors Who Snatched Up Farmland Harvesting "Gold"?

September 10, 2020

American farmland is retaining its record high value, even amid rising planting and maintenance costs and diminishing financial returns. U.S. cropland is currently valued at an average of $4,100 per acre, which matches record high values from 2019 and 2015, according to recent data from the U.S. Department of Agriculture.

Investors who’ve been snatching up rural real estate farmland over recent years may be reaping the gains from the increasing value of the land. Other investors are looking to farmland as a haven during the COVID-19 pandemic, too. The Farmers National Company says that the COVID-19 pandemic has made more people think about the food supply chain and its sustainability, motivating some seeking ownership of it.

About 39% of the 911 million acres of farmland in the U.S. is rented, according to USDA data.

More companies and institutional investors are bidding on American farmland. During the 2007 financial crisis, institutional investors sought safer investments that could shield them from the housing crisis. That sparked an increase in farmland investors.

More farmland could come up for grabs as more farmers approach retirement. About one-third of America’s farmland is owned by people over the age of 75. Some 92 million acres of farmland is predicted to change hands to investors over the next few years, The Counter reports.

“Farmland and other real estate investments are good investments to balance the risk of investments in stock and bonds,” Craig Dobbins, a professor of agricultural economics at Purdue University, told The Counter. “These buyers are sensitive to the expected rate of return that will be received from the purchase of such as investment. If farmland values rise to levels that it does not appear the investment will provide the threshold rate of return, they will not purchase. The location preferences of these buyers are more flexible than an individual farmer.”

But as farmland is treated more like a financial investment, the high prices are making it more difficult for new young farmers to enter the field.

Foreign investors are also increasingly snatching up American farmland. Foreign buyers own 25 million acres of U.S. land, which is about the size of Virginia. China now controls more than 400 American farms. States like Iowa have banned the sale of farmland to foreign buyers; other states also have laws that limit the number of acres that can be sold.

Source: 
U.S. Cropland Maintains Record-High Value in 2020,” Virginia Farm Bureau Federation/Independent-Messenger (Sept. 2, 2020); “Big-Money Investors Gear Up for a Trillion-Dollar Bet on Farmland,” NPR (July 30, 2020); and “Farmland Ownership Interest Growing,” Southeastagnet.com (Sept. 3, 2020); and “Who Really Owns American Farmland?” The Counter (July 31, 2017)