Increasing land values lure investors
The U.S. and global recession has taken its toll on stocks and many traditional investments. Many traders and investors seeking a safe haven for their money have turned to gold and U.S. Treasury Bonds. Others have found solid returns by investing in farmland.
In its annual report on farmland values, the U.S. Department of Agriculture found a 6.8 percent increase in the value of farmland from 2010 to 2011. USDA put the average value of farm real estate at $2,350 per acre, with cropland values at $3,030 per acre and pastureland values at $1,100 per acre.
Returns like that don’t go unnoticed. Bloomberg Markets Magazine reports that “investors are pouring into farmland in the U.S. and parts of Europe, Latin America and Africa as global food prices soar. A fund controlled by George Soros, the billionaire hedge-fund manager, owns 23.4 percent of South American farmland venture Adecoagro SA.”
Wisconsin-raised Perry Vieth left a career as a securities lawyer to cofound an Indiana-based investment firm that oversees 61 farms valued at $63.3 million. He told Bloomberg Markets Magazine, “It will always be difficult for Wall Street firms to understand (farmland investments). It’s not like buying stocks on a computer.”
Farmland values have outpaced stocks and many other investments since September 2008 when the stock market plunged at the beginning of the recession. Analysts believe farmland values are supported by the growth in demand for food, spurred by the rising middle class in countries like China and India.
USDA’s latest report on farmland values shows prices varied considerably last year depending on region. The report shows a whopping 15.9 percent increase in the Corn Belt region, while farm real estate in the Southeast declined 2 percent over the same period.
On average nationally, pasture values were up by 1.9 percent, at $1,100 per acre, but again, changes varied by region. Pasture values declined in the Southeast by 8.4 percent, while values in the Corn Belt and Northern Plains regions each increased by 6.6 percent.
Further declines in both farmland and pastureland are expected over the next year in drought-hit areas such as Texas and the Southeast. Investors who help drive farm real estate values are unlikely to be lured to areas damaged by drought and other natural disasters. And the impact of the drought on real estate values may remain for an extended period of time.
And farmland prices in other regions aren’t immune to declines. “Yes, farmland will be a bubble again,” Jim Rogers, chairman of Singapore-based Rogers Holdings told Bloomberg Markets Magazine. “All agricultural products will be in a bubble again.”
To read the full story from Bloomberg Markets Magazine on farmland values click here.