Marc Schober is the editor of Farmland Forecast an educational blog devoted to investments in agriculture and farmland.
Investors interested in farmland once again
Nov 02, 2009
Investors are showing interest in global farmland again. Besides individual investments in US farmland, foreign farmland has taken the spotlight. Areas like Canada, Africa, and Australia are becoming targets for farmland investors.
In 2008, while food prices soared to all time highs, farmland values increased by double digits across the US and globally. In the second half of 2008, food prices fell and so did farmland values. The difference between farmland and other investments is that farmland was able to fare the economic storm without too much lost value.
According to the Wall Street Journal, the fundamentals of farmland as an investment are improving due to limited supply, water scarcity, increasing food demand, and food security concerns. These factors are leading analysts to anticipate recovery faster in some areas than others.
Andrew Shirley, head of rural property research at U.K.-based Knight Frank, said this about farmland prices: "I do not expect farmland prices to increase at the same double-digit rate that we saw in the first two quarters of 2008, but the recovery has started earlier than some people expected and average values should steadily climb back compared to other investment and property sectors, farmland values on average have remained relatively unscathed by the economic downturn."
Despite the global recession, land prices are growing in many areas, including in Saskatchewan, Canada. Saskatchewan farmland prices are up 15% year-over-year. Prices have recently grown partially because Canadian citizens from outside of the province can now own Saskatchewan farmland.
The Wall Street Journal noted that agricultural funds are the fastest way to invest. It is very hard for an individual investor to buy farmland because of the amount of capital needed, not to mention the amount of research necessary to make an knowledgeable purchase. Also, like we have been saying as well, farmland is a great hedge against inflation and a good investment during economic adversity.
Globally, farmland values have acted erratic in some areas. As we spoke about above, Canada is experiencing large increases of values along with parts of Australia. On the other hand, Ukraine farmland, which interested investors in the past, has dropped 75% in value because of speculative investments. Also, South America is experiencing some of the same situations.
The USDA just announced that US farmland has decreased in value for the first time in more than 20 years, though this is not necessarily a bad statistic. US farmland is obviously weathering this economic storm better than many other countries, and with its extraordinary history of consistent gains, US farmland is poised to increase once again. This leaves investors a limited window to acquire land at lower prices.
Farmland is a different kind of investment as it not only provides appreciation, but pays you to hold it.
Read more about farmland and agriculture at farmlandforecast.colvin-co.com.