How to Invest in Farmland
The appeal of investing in farmland has grown tremendously over the past few years as rising populations in booming emerging markets across Asia and Latin America are driving food demand now more than ever. The investment thesis for this asset class is fairly straightforward: farmland prices, both at home and abroad, have appreciated greatly in recent years as agribusiness has expanded tremendously to meet the needs of an ever-increasing world population. Buying a plot of land requires a great deal of resources in addition to tons of research, although doing your homework could pay off big time.
Historical data reveals the appeal of this timeless hard asset; in Illinois, between 1987 and 2004, farmland prices averaged annual increases of 4.8%. What’s even more compelling is that prices have gone onto appreciate even more rapidly in recent years thanks to record-low interest rates and steadily growing demand for commodities. Farmland prices have averaged annuals gains of 15% between 2004 and 2008, showcasing the ability of this asset class to deliver uncorrelated returns to broad equity markets. Experts have expressed their concerns that land value increases of this magnitude are unsustainable, although they have also acknowledged that increasing food demand from all over the globe is a key factor that would likely prevent a major collapse.