Farmland in the US has experienced a steady rise in value every year except four since the Second World War and returns have been positive every year since 1990, according to investment manager Ceres Partners, which owns more than $1.4 billion of arable land.
This has translated into a six-fold increase in the average price of farmland from 1940 to 2015 and economists expect that trendline to steepen, Popular Mechanics reported recently.
Truth be told, rising agricultural input costs (for seeds, fertilizer, etc) has been making it difficult for the small family farm to survive, prompting well capitalized corporations, such as Prudential, Hancock, and UBS, to acquire substantial US farmland holdings that are able to operate profitable due to economies of scale.
And wealthy individuals are in on the land grab also. Bill Gates, one of world’s richest people, began investing in agricultural land in 2013, though his money management vehicle Cascade Investment, due to its steady increase in value and low volatility, Popular Mechanics noted.
Microsoft’s founder disclosed in a Reddit forum earlier this year that he owns about 270,000 acres spread across 18 different states, making him the largest individual landowner in the US.
And while Gates may own the land, professional farmers work it to produce food but are thought to have adopted the billionaire’s commitment to sustainable agriculture.
For individual investors, meanwhile, there are some publicly traded ways to own farmland without getting your hands dirty.
One possible option is NYSE-listed Farmland Partners Inc. FPI is an internally managed real estate investment trust (REIT) that owns and seeks to acquire high-quality North American farmland and makes loans to farmers secured by farm real estate. The company owns and/or manages about 176,000 acres in 19 states.
Shares of Farmland Partners have produced an average annual return of 25% over the past five years and its stock is currently yielding about 2%.
Another publicly listed option is Nasdaq-listed Gladstone Land Corp. LAND is a publicly traded REIT that invests in farmland located in major agricultural markets in the US, which it leases to farmers. The company currently owns 169 farms, comprised of approximately 116,000 acres in 15 different states and 45,000 acre-feet of banked water in California, valued at a total of about $1.6 billion.
Shares of Gladstone Land have produced an average annual return of just 5%, excluding dividends, over the past five years although its stock is currently yielding nearly 4%.
Given the impact of climate change on arable land and a growing global population, farmland appears to be an unstoppable investment force in the years ahead.