4 REASONS TO OWN FARMLAND
World population growth is the key driving force to the continuous increase in value that farmland will garner in the next 35 years. By 2050 it’s estimated that global food production will be feeding at least 9.6 billion people. Owning U.S. farmland has been, is currently, and will continue to be a profitable investment.
1. PRESERVATION OF CAPITAL
Historically, farmland is one of the most stable investments available since the depression.
2. CURRENT INCOME
Farm rent payments are made in advance, annually. Returns historically exceed bonds and CD rates.
3. RENT INCREASES
Since 1998 rent has increased 1.5 – 3% annually. Source: “Rent, Cash, Cropland – Expense, Measured in $/Acre.” USDA National Agricultural Statistics Service, 2015.
4. LAND APPRECIATION
Farmland has been an excellent inflation hedge. In the last 20 years it has averaged appreciation of 11.89% annually, but historically farmland averages 4-6% appreciation.
In 2015 United States Department of Agriculture (USDA) reported: There was an 8% decline in the number of acres in farms over the last twenty years. In 1990, there were almost 987 million acres in farms in the U.S., that number was reduced to just under 943 million acres by 2000, and then reduced to 912 million acres in 2015.
A GOOD PORTFOLIO ADDITIONFigure 3. Farmland cash rents produce a steady income each year. History proves that land is a good hedge against inflation. Land is also an excellent investment portfolio diversification tool because it doesn’t rise and fall in step with the value of other assets, notably stocks.
DEMAND WILL RISE
As shown in Figure 5 farmland is critical to the maintenance of advanced industrial civilization. Food production for the growing population (currently more than 7 billion people and estimated to be 9.3 billion by in 2050), improved diets, and biofuel production means the demand for and value of farmland will only continue to increase.
Farmers are continually required to feed more people with less acres in production. In 1950, there were 1.2 billion acres growing food in the U.S. In 2010, there were barely 920 million acres — producing more food per acre than ever before. Through efficiency and production demand, the values will continue to rise.
ATTRACTIVE RETURNS/LOW RISK
As shown in Figure 4 over the 40-year time period shown, farmland has provided attractive returns at relatively low risk.
Farmland value and appreciation in the last 75+ years, increasing population, food demand, natural resource demand, and finite land supply are reason to trust in the value of investing in farmland.