Farmland in America has reached a record high value, at a time when growing planting and maintenance costs are leading to diminished financial returns in the agricultural sector
Recent data from the U.S. Department of Agriculture shows that cropland in America is currently worth $4,100 per acre on average, matching record highs set in 2015 and 2019.
With those gains, investors who’ve been buying rural real estate farmland in recent years are likely to be reaping the rewards of their endeavor. Other investors are now turning to farmland as a safe haven during the COVID-19 pandemic. The Farmers National Company said recently that the pandemic has forced people to consider the food supply chain and its sustainability, and that has motivated some to want to take ownership of it.
Around 39% of the 911 million acres of U.S. farmland is rented, USDA data shows.
Now, companies and institutional investors alike are trying to grow their farmland portfolios. It comes after a similar land grab that followed the 2007 Great Recession, when investors turned to farmland to shield them from the collapse of the housing market.
Experts say that more farmland could go on sale in coming years as more farmers approach retirement age. Around a third of America’s farmland is owned by people aged 75 or older, and experts say 92 million acres will change hands, with investors being the main recipients, in the next five years, according to a report in The Counter.
“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 with farmland being treated more as a financial investment, the higher prices are making it tough for younger farmers to get into the market.
The competition is being intensified by foreign investors too. According to USDA data, foreign buyers own a combined 25 million acres of U.S. farmland, which is around the same size as Virginia. Chinese investors now own more than 400 American farms, and that has led some states, such as Iowa, to ban the sale of more farmland to foreign buyers. Meanwhile, other states have introduced limits on foreign ownership of farmland.