New Crop of Investors Lured to Farmland

DAVID KESMODEL and JESSE NEWMAN  |   August 5, 2015

Investors are flocking to farmland again, hoping to capitalize on what they view as a temporary slump in the agriculture industry that has pushed down land prices in some areas of the country, The Wall Street Journal reports. Pension plans, hedge funds, and mom-and-pop investors are all reportedly increasing their interest in farmland as an investment. One of the biggest waves of cropland investments recently by institutional investors has come from the financial services company TIAA-CREF, which announced that it has raised $3 billion for its second global farmland-investment partnership, which encompasses investments in North and South America, as well as Australia. Also several public-stock offerings by farmland owners have packaged their properties as real-estate investment trusts (REITs), opening the door to greater investments in farmland. “Investors are betting farmland will yield good long-term returns as global food demand rises with growing populations and wealth in Asia, Africa and elsewhere,” The Wall Street Journal reports. “The amount of arable land is expected to increase only modestly, at best, due to urbanization and a lack of acreage suitable for crops.” Learn more about cooling farmland prices. Also, a main attraction to farmland is that “these are assets that are producing an essential need for society and, in many cases, into perpetuity,” says Jose Minaya, senior managing director at TIAA-CREF Asset Management. Farmland capital values have increased an average of 4.6 percent annually since 1990, according to data from the National Council of Real Estate Investment Fiduciaries. When adding in the income that the land generates, the return has averaged 11.8 percent. For most of the past decade, farmland values have been soaring in the Midwest, but lately have cooled due to a three-year slump in grain and soybean prices. Notably, average farmland values fell 9 percent last year in Iowa, which is the largest corn producer, and values in Illinois, the largest soybean producer, reportedly fell 1 percent to 3 percent. The decrease in values is sparking an opportunity for investors, says Paul Pittman, chief executive of Farmland Partners and a former investment banker.

Source: The Wall Street Journal