Jane Smiley, a former English professor at Iowa State University, wrote a Pulitzer Prize-winning novel about an Iowa farm family in the 1970s feuding over control of 1,000 acres. The Shakespearean drama that unfolded in the fictitious A Thousand Acres could be expected given the rapid increase in farmland values at the time.
U.S. farmland more than tripled during the decade, from $196 an acre in 1970 to $628 in 1979, according to U.S Department of Agriculture (USDA) data. An acre averages $3,380 today – and a lot more in fertile Midwestern states – based on that same survey.
Today’s land appreciation is meant for investing, not fighting.
Nearly 40 years ago, I helped pioneer the idea of farmland as an investable asset class for institutional investors. At the time, farm country was embroiled in a financial crisis, but investors were willing to bet on agriculture’s bright future, especially as more farmers started renting acreage to scale operations.
Investors’ optimism rings just as true today. Why? Because farmland represents a large and under-allocated sector that provides steady appreciation and predictable income. Plus, the growth potential is tremendous.
There’s approximately $2.7 trillion worth of farmland in the country, which is more than twice the size of the office real estate market. Yet, ownership by public companies represents less than 1 percent of that value. Compare that with 10 percent public ownership of offices.
Farmland is also an attractive option for anyone seeking long-term stability and protection against inflationary pressures. In fact, farmland has been called “gold with a coupon” because of its resilient performance during rising inflation.
Iowa farms are a perfect example. Calculating data from the USDA and Iowa State University, we see that farmland in the state has returned 18.4 percent annually in years since 1970 when the country’s inflation rate surpassed 4 percent. By comparison, returns were 7.6 percent when inflation was below 4 percent.
Unlike other kinds of real estate, farmland values in the United State have witnessed an almost uninterrupted rise over the last couple of decades. There are also several key characteristics that set cropland apart from other real estate investment options. Reduced risk of undesirability and vacancy are chief among them.
Most pieces of real estate become less competitive as they age because people want fresh new spaces with the latest amenities. Buildings, for example, are forced to undergo extensive and expensive renovations to avoid becoming undesirable or unusable.
Farmland typically doesn’t lose desirability as it ages, and it doesn’t have to be constantly overhauled to stay competitive. Quite the opposite. The demand for food and biofuels continues to grow, thus increasing the need for productive acres even though new farmland is rarely created.
At the beginning of this year, I spent significant time reflecting on my career and thinking about how far the farming sector has come in a relatively short period of time. For example, I just stumbled on a note I sent to clients in 1988.
“Land that was selling for $900 - $1,100 per acre (and begging for a buyer) 18 months ago is now meeting an aggressive market at $1,400 - $1,800 per acre,” I wrote back then.
That correspondence explained that a rise in commodity prices and export opportunities were largely responsible for the value uptick, then asked, “Could you imagine what would happen to our marketplace if inflation rekindles significantly?”
We are now seeing the answer to that question. Strong crop prices and exports, plus the highest inflation in nearly 40 years, equals investment upside.
I can’t remember a time in my entire career when I’ve felt as good about owning farmland.
Murray Wise has authored two books about farmland investing and is the founder of Murray Wise Associates (MWA), a leading agricultural real estate marketing, management, and investing firm. MWA is a subsidiary of Farmland Partners Inc. (NYSE; FPI), which as of March 1, owned and/or managed approximately 186,000 acres in 19 states.
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