Part of that thinking may be figuring out how to differentiate between the capture of farmland by corporations and profiteers, which is happening more and more, and the rare investments that can give farmers a leg up.
From 2000 to 2020, U.S. farmland returned an average annual rate of return of 11 percent, keeping pace with the stock market over the same time period but with significantly lower volatility. It has also historically outperformed most other asset classes, including gold, bonds, and commercial real estate.
Investing in agricultural land makes intuitive sense because farmland itself is a limited and diminishing resource. This scarcity provides near-constant pressure on supply, ensuring price support over time.
One of the main reasons farmland is such a good investment opportunity is the variety of opportunities to create profit streams and facilitate wealth. This is especially true during times of high inflation. Farmland values have historically had a highly correlated relationship with inflation because when food prices rise, farmers receive higher crop prices, and their land becomes more valuable as a result.
Increased land values are a significant driver of profit for investors who choose farmland. According to data from the NCREIF farmland index, land prices have increased by an average of more than 6 percent every year for the last five decades, with values decreasing only during five years in that period.
When you buy farmland, you can also derive significant returns through crop harvesting and sales. Yields and time to harvest vary by crop, but double-digit returns are achievable in many areas. The current historically high rate of inflation has been a boon to many farmers, with a number of commodities reaching record-high crop prices, such as wheat.
Due diligence can help you find farm-related investments throughout the food supply chain, from machinery and equipment to produce, grain, livestock, and tobacco companies. Many investors even invest in shares of supermarkets.
Investing in real estate investment trusts (REITs) is another way to create passive income from farmland. There are both private and publicly traded farmland REITs that offer the benefits of farmland investing along with the advantages of stocks.
There are various private equity funds available that focus their investments on farmland and food production. These funds have become more attractive to investors and grown in number and size, especially as food prices continue to soar.
This type of ownership is extremely attractive to investors because it means they receive direct land ownership in a specific farm, not shares of a company or fund. Additionally, this ownership structure allows for increased diversification through low investment minimums and a multitude of agricultural investments to choose from.
Expert agriculture teams cultivate and harvest the land to optimize your farmland returns. Your farmland partners take care of managing the real estate, property, and equipment, harvesting and packing crops, and handling sales, allowing you to build passive wealth in the farming sector.
While many consider farmland a niche investment, it actually ranks third in total real estate market share in the U.S., according to a report from Forbes. Single-family homes top the list, followed by CRE with a value of $2.9 trillion and farms just slightly behind at $2.5 trillion.
Expert investors agree that acting sooner rather than later can amplify your potential profits from farmland investing. As the nation faces historic rates of inflation and rising interest rates, farmland values provide a stable shelter from the storm.
As noted above, owning farmland becomes less realistic for future generations as the amount of available acreage declines dramatically every decade. According to the New York Times, only about 20 percent of U.S. farmland is currently suitable for crops.
This farmland sector has a maturation period before you can profit from your investment. Some of these crops, such as pecans, have a longer maturation period but can produce up to a century of solid returns. Others, like almonds, peak faster but have a shorter period of peak productivity.
Farmland can serve as a cornerstone of a balanced investment portfolio. Commodity prices, including the cost of food, tend to rise with inflation. This strong correlation allows agricultural investing to protect against inflation, especially compared to high-volatility assets. As crop prices rise, the value of the land itself tends to increase at the same time, building an even stronger shield against market conditions.
For more information on how you can become a farmland owner yourself and benefit from a diverse portfolio that includes agriculture, fill out the form below and our team will be in touch to get you started today.
The investment information provided in this table is for informational and general educational purposes only and should not be construed as investment or financial advice. Bankrate does not offer advisory or brokerage services, nor does it provide individualized recommendations or personalized investment advice. Investment decisions should be based on an evaluation of your own personal financial situation, needs, risk tolerance and investment objectives. Investing involves risk including the potential loss of principal.
Historically, investing in farmland was not something that made sense for most Americans. The upfront cost was high, and investing required an intimate knowledge of the farming industry. However, that is changing rapidly, with new investment opportunities that greatly reduce these barriers to entry.
In the past, the only way to invest in farmland was to buy a farm or pasture and earn a return from tilling the fields or watching the land appreciate in value. That limited scope of investment meant investing in farmland only made sense for those who could produce from the land. For example, someone whose family had been farming for generations might have chosen to invest.
Opportunity: One alternative to investing in farmland directly is investing in agriculture stocks. The idea is simple: instead of buying farmland, you buy shares of stock in companies in the agriculture industry.
Details: These agriculture companies might be involved in things like crop production, agricultural equipment manufacturing, fertilizer production and distribution. Crop producers, for example, make a return on the investment from producing the land, and they may own the land, too, so they can benefit from the potential rise in land prices. Widely held agricultural stocks include Archer-Daniels-Midland (ADM), Corteva (CTVA) and Scotts Miracle-Gro (SMG).
Opportunity: Farmland crowdfunding platforms are another way to invest in farmland directly, even if you lack the necessary capital. They allow you to buy a small slice of a real farm, significantly lowering the minimum investment. These platforms include AcreTrader, FarmTogether and Farmfundr.
Details: Farmland crowdfunding platforms generally handle everything for you, from land selection to income distribution. Instead of buying an entire farm, you buy more affordable shares in a piece of land with other investors. For example, offerings on AcreTrader tend to start with a minimum initial investment of $15,000-$40,000, according to the company.
In the past, those who wanted to invest in farmland had few options short of buying an entire farm. But buying a farm is generally expensive and requires intimate knowledge of the industry and its practices. While buying a farm is still an option, farmland investors now have many more options, including REITs, agricultural stocks, investment funds, and crowdfunding.
According to the University of Missouri, land values continue to rise throughout the state, often exceeding expectations. From 2019 to 2020 non-irrigated cropland rose 2 percent to $5,555 per acre. Pastureland gained even more value during this time, rising 6 percent over the year to $3,374 per acre. The value of farmland varies between regions so take your time exploring different areas before investing. Depending on how you plan to manage your investment, you may decide to purchase irrigated or non-irrigated cropland, pastureland, timberland, or recreational/hunting land.
As of September this year, the annual US inflation rate was up to a 13 year high. This means you are paying more for the same goods and services than you did last year. In other words, the value of the dollar has decreased. There are very few investments that often keep pace with inflation, and they are gold, Treasury Inflation-Protected Securities, and physical land. Adding farmland to your investment portfolio can serve as a hedge against inflation and may help protect the value of your money over time.
Farmland offers both short-term and long-term opportunities for creating wealth. The land parcel itself is a hard asset typically maintains its value in your investment portfolio. Its low-risk nature can help diversity your holdings and balance out some of your riskier stock market investments. Land can also serve as a vehicle of wealth to be transferred to your heirs through a revocable living trust.
Unlike stock certificates, land is a tangible asset that you can enjoy while it grows your investment. Want to invest in waterfront property Thanks to all the wonderful lakes in the state, Missouri has more miles of coastline than the Pacific coastline of California. If weekend hunting trips are more your style, invest in forested acreage a few hours from home. Off-roading and ATV driving can also be a fun pastime on the right piece of land. An investment in land can lead to an abundance of recreational opportunities for you and your family.
Now that you are ready to diversify your investments with a land purchase, you need an agriculture bank in Missouri and Iowa. At BTC Bank, our associates have helped generations of farmers and ranchers with farmland loans. Agricultural loans in Missouri are our specialty, and we offer farm loans and land financing for financial investors as well as family farmers. Finance your farmland purchase with a Farm Real Estate Loan, or get your farm up and running with a Farm Operating Loan from BTC Bank. 59ce067264