A new breed of investors
“The Russians are coming, the Russians are coming,” was repeated throughout a movie from 1966s about a Soviet submarine that runs aground off the coast of a small island in Massachusetts.
In the movie, the Russian captain sends his two English speaking crewmen, along with seven other Russian sailors, to procure a boat powerful enough to pull them off the shore. They meant no harm to the locals, but the Russian sailors didn’t exactly blend into the community. When the town folks see the Russians they go into a frenzy. They are convinced they are being invaded.
Okay, so the Russians aren’t invading, but a new breed of investors are coming to a farm sale near you.
The traditional farmers are being overrun by wealthy investors such as software executives from California, a publishing executive from Chicago or a Boston money manager. There are also organizations, pension funds and foreign entities purchasing agriculture land for its potential.
Among funds and organizations with large chunks of money in farmland according to Canada’s Globe and Mail newspaper:
- TIAA-CREF, the $400 billion pension fund for the U.S. academics and researchers, owns roughly $2 billion worth of farmland in North America, South America, Australia and Europe.
- The Church of Jesus Christ of Latter Day Saints owns more than $5 billion worth of farmland in U.S., Canada, Mexico, Brazil, Argentina, New Zealand, Australia and Great Britain. This includes 290,000 acres of Florida property, one of the largest ranches in the United States.
- Hancock Agricultural Investment Group manages about $1.3 billion worth of farmland including 210,000 acres in the U.S.
These investors continue to flow into our communities and these type of investments are expected to double by 2015.
What is causing this phenomenon?
It is the classic economic supply and demand. Commodity prices are soaring, low interest rates, world population is increasing, land is a finite resource and the DOW is taking a beating with the events in Washington D.C. So savvy investors are looking for opportunity – greener pastures.
Investors are seeing better options of shifting their money to alternatives strategies. This explains the rapid rise of gold, art, oil and yes, farmland. Many investors like to point out that unlike the first three choices the farmland offers a unique opportunity to sell what you grow. Also there is an abundance of farmers you can hire to farm for you or lease the land out for cash rent.
Most of these folks have never planted seeds or brought in a harvest. To them, it is just another tradable asset they hope will bring in a return that beats other investments.
As we all know in the farming community, dangers lurk for investors purchasing farmland at elevated prices. As with stocks, farming can swing in a different direction on news of abundance of grain harvested overseas or bumper crops in the United States.
There are some that say commodity prices may be an unsustainable bubble.
Yes, I miss the days of going to a land auction with my dad years ago and watching farm neighbors bidding against each other toward the ultimate prize. The tension in the room was so thick you could cut it with a knife. It was a fascinating process. It is something I will never forget.
No, “the Russians aren’t coming,” but remember when you attend the next farmland auction, it might not be your neighbor you have to out bid, it might be your stockbroker from New York City.