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Investors are buying more U.S. farmland in search of a hedge against inflation as commodity shortfalls caused by Russia’s invasion of Ukraine drive world food prices to record highs.
Land values in the Midwest grain belt have gained 25 to 30 per cent in the past year while auctions draw intense bidding for available ground.
Demand for land has picked up in the past month as the war in Ukraine and financial sanctions on Russia curtail critical exports of wheat and corn from the Black Sea region. The United Nations’ world food price index rose 24 per cent in February from a year earlier.
“Interest in the asset class has never been this high before,” says Bruce Sherrick, a professor of farmland economics and director of the University of Illinois’ TIAA centre for farmland research.
In the Midwestern state of Iowa, which restricts corporate ownership of farms, the buyer pool last month consisted of 35 per cent investors and 65 per cent farmers, according to the Realtors Land Institute. That compares with 18 per cent investors in 2019. The price of Iowa farmland rose by a third between March 2021 and March 2022, the institute said.
Big institutions have long pursued farmland, led by fund groups such as Teachers Insurance and Annuity Association of America-College Retirement Equities Fund (TIAA) and public pension plans, but institutional investors own only 2 per cent of the US$3-trillion U.S. market, according to industry estimates. More than 40 funds have raised US$8.7-billion in the past five years to invest in U.S. farmland, according to Preqin, a data provider.
Retail investors are able to buy into farmland investment trusts such as Gladstone Land Corp. LAND-Q, whose shares have doubled over the past year, or Farmland Partners Inc. FPI-N, which is up 21 per cent over that period.
“Our investor education team cannot answer all the calls they are receiving. It’s been difficult to get to the backlog of inquiries,” says Carter Malloy, founder of AcreTrader Inc., a firm that enables retail investors to buy stakes in farms.
As land prices rise, competition for available farms has intensified. Investors are having to look harder to find attractive ground.
“We’re walking away from many more aggressively priced farms now,” says Artem Milinchuk, founder of farmland investment platform FarmTogether Inc.
Higher land prices have, in some cases, outstripped farmland’s earnings potential, leading income returns to investors to decline in recent years, according to Nuveen Natural Capital LLC, a division of TIAA.
But total returns, which also include price appreciation, have been strong. For annual cropland, total returns were 11.1 per cent in 2021, according to the NCREIF Farmland Index, which tracks holdings of investors including Gladstone, TIAA and Prudential Financial Inc.
In the Midwest, the most mature and liquid U.S. farmland market, investors are paying high land prices at a time when farm input costs such as fertilizer and diesel are going up, says Craig Wichner, the founder of Farmland LP, an investment fund that owns more than US$200-million in land and raised more than US$130-million in March.
“The worry is they’re investing into office buildings right before COVID-19,” Mr. Wichner says.
About 70 per cent of U.S. farmland is set to change hands in the next 20 years, according to the U.S. Department of Agriculture, and institutional investors are poised to gain a bigger share as old farmers retire.
John Robinson, a fourth-generation soyabean and corn farmer in central Illinois, says more investor involvement could prove valuable.
“I’m not going to buy US$20,000-per-acre farm ground, good Lord,” he says. “Land prices have jumped in the past two years. If there’s an investor who wants to do it, perfect. Let them take on the risk.”
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