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Farmland: America’s Hidden Gem

May 13, 2013

 

Fox News. USA Today.  The Associated Press.  Recently, mainstream media has been noticing the rise in farmland values.  In Iowa, prime farmland values have nearly doubled since 2009.  Despite strong performance, the fundamentals for agricultural real estate remain strong.

The familiar long-term trends remain firmly in place: increasing world population, limited arable land, fresh water constraints and declining growth in crop yields.  In addition, consumption patterns (due to sustained economic progress in emerging markets) continue to favor increased meat consumption, which requires greater quantities of grain for the same amount of consumable calories.  Meanwhile, the additional demand provided by biofuels provides price support for crop values.  Add to this mix the more recent trends of additional revenue from windmills and fracking, and it is easy to understand the strong performance in farmland prices.

But one particularly powerful trend which stands to dramatically increase farmland values has yet to be felt: inflation.  WindRock believes the U.S. economy will experience significant inflation.  In times of sustained inflation, owning basic necessities is a key strategy.  The demand for necessities, including food, will remain strong compared to more discretionary items.  Crops prices will appreciate both with the effects of inflation and the aforementioned sector trends.

In addition, the rise in farmland prices has been made absent significant interest and involvement by the investment community.  Most sales of farmland are between fellow farmers – and these sales are typically not financed by debt (which one would expect in a bubble) as 50% to 75% of purchases are typically made with the farmer’s own cash.  The illiquid nature of farmland has prevented the investment community from participating in farmland’s past and future appreciation.  But WindRock has a solution.