Growing interest in the investment potential of farmland

With people looking for good investments, farmland is getting some attention:

Just how hot is American farmland? By some accounts the value of farmland is up 20% this year alone. That’s better than stocks or gold. During the past two decades, owning farmland would have produced an annual return of nearly 11%, according to Hancock Agricultural Investment Group. And that covers a time period when tech stocks boomed and crashed, and housing boomed and crashed. So at a time when investors are still looking for safety, farmland is becoming the “it” investment.

The article goes on to say that because food demand is up, particularly for corn, and crop yields are up because of improved technology. At the same time, perhaps there is a market bubble going on here and it is difficult to get into the business of owning farmland.

I find it interesting that there is no mention of land development in all of this. In areas of sprawl, farmers can benefit from skyrocketing land prices as developers and builders look to acquire buildable acreage. But this story seems to be talking mainly about farm land in the middle of country, not farmland on the booming southwest edge of the Chicago region. In the long term, is farmland more valuable because of the commodity values (which can fluctuate) or because it can eventually be sold for other profitable uses?

Perhaps this all works because it is difficult to envision too much more American land becoming farmland – the total number of cropland (and farmland and pasture) acres has dropped from over 445 million acres in 1997 to over 406 million acres in 2007. If food demand is continually strong and there is a somewhat fixed number of acres that can be farmed, perhaps this is indeed valuable land.

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