Is Farmland Too Good of an Investment
Jun 23, 2010
I have written many times about how farmland has been a good investment for at least the last 10 years or so. Most of this data has been gathered from sources directly related to farming, however, I have started to notice a trend about reporting on farmland as an good investment in mainstream sources such as Business Week.
This trend continues with a recent article in the Wall Street Journal about buying farmland for income. The article indicates that by buying farmland, an investor should receive a current 3-5% yield plus up to another 5% in annual price appreciation over the term of the investment. This comes from R. Dennis Moon with US Trust, a unit of Bank of America.
One of the challenges right now is finding quality land. The supply is smaller than usual since farmers and their heirs are keeping the land they otherwise might have sold, in order to book the rental income. The number of qualify farmland for sale appears to be down about 30-40% according to Loyd Brown of Hertz Farm Management, Inc. of Nevada, Iowa. Even medium quality land is down by this amount.
Now that these articles are now starting to appear in main-stream sources, my contrarian sense is that farmland may be starting to peak as an investment for investors. This may end up being good for farmers if the speculative pricing gets eliminated from land values. We can wait and see how it turns out.