When the stock market collapsed this past month, my college roommate called me in a panic. She lives in New York City, and the velocity of the collapse had people around her suggesting it was 2008 again. The idea that the volatility in the stock market might continue delivered a psychological blow to the average investor.
My friend now is looking for a safe haven for her investments. "Where’s the smart money headed?" she asked. Given that private equity typically seeks hard assets when it gets scared, it’s no shock that more investors are headed toward terra firma. Land is quickly becoming an important component of many investment funds and individual portfolios.
Murray Wise, president of national farm real estate company Murray Wise Associates, notes that local investors—not only farmers, but lawyers, bankers, dentists, teachers and others—continue to report land returns that can’t be equaled in any other investment. "We’re even seeing ‘retired’ farmers who are starting to put money back into farmland because it’s simply a more attractive investment," Wise says.
Land has more liquidity than ever before due to demand, which is enticing owners to sell, and in some cases, buy other farms to fine-tune their investment portfolios. Thanks to today’s auction methods, it’s more feasible to diversify among different types of agricultural land by region or crop.
"Right now, Midwestern corn and soybean land is obviously on a roll. But climate and market factors will reward different types of land at different times," Wise notes. You could, for example, sell properties that have done well and diversify by purchasing Kansas wheat or California vegetable land. "Once you focus on the range of agricultural land investment choices, the possibilities are endless," he says.
Even though recent prices on agricultural land have shot to the moon, demand continues to strengthen. Investors and farmers frequently square off when Murray Wise is auctioning agricultural land, especially when it is offered in tracts. "We’re seeing this pull-and-tug between local farmers and investors more often than not in our auctions," he adds.
Psychology of Land. It’s really not about chasing returns anymore for the average investor; it’s about finding a safe haven for their money. With all the uncertainties facing Americans today—the sour economy, debt troubles around the world, oil prices, etc.—the certainty that we will always need food is comforting. Given its limited supply, farmland is likely to be an excellent investment for the next few decades. Watch who comes walking down your farm lane.
- September 2011