Farmland Is an Attractive Long-Term Investment For Funds

January 26, 2011 12:13 PM
Farmers looking to expand through land purchases are facing a new competitor today. Or maybe it’s a new partner, if the interest shown by many of the participants at the Top Producer Seminar on Thursday was any indication. Biff Ourso, director of Global Private Markets for TIAA-CREF, explained his company’s interest in farmland investments and how they work with tenant farmers to expand their business portfolio.
Ourso outlined the five basic principles, all related, that are driving their interest in the market:
1.      Growing populations. "There is an increase in global demand for food, fiber and fuel products. We think that will continue for a long time."
2.      An emerging middle class in developing countries. "With this development there is increasing protein consumption. That creates a multiplier effect, it is a key driver for grain demand going forward.
3.      Biofuels mandates. "In the U.S. and abroad the support for biofuels is growing exponentially and it looks to continue for the forseeable future."
4.      There is a limited supply of farmland.
5.      Foreign governments are taking a more active role in global grains markets. "China has approximately 20% of the world population to feed on only 7% of the farmland in the world."
Ourso says adding to these factors is that farmland returns have compared favorably to stocks and other investment opportunities and has also demonstrated a positive correlation to inflation and that is why TIAA-CREF is looking at this as a long-term conservative investment.
He says the U.S. market provides a good, safe long term investment opportunity, despite cheaper and equally productive land in areas like Brazil and Australia. The company has investments in those countries as well, but the U.S. market remains a focal point for investment.  
"We focus on major grain exporting countries, who will meet the global increase in demand. At the end of the day, U.S. is our anchor market."
That’s where the opportunity comes in for U.S. farmers who are looking to expand their operations without purchasing large tracts of land.
Ourso lists farming experience, access to capital and equipment that will allow for easy access. Beyond that, he says relationships are key.

"Successful farmland investing is about good relationships. In order to be a good farmland partner, you just can’t worry about yield today. You have to make sure you are good managers and stewards of the land in sustainable way for the long term." 

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Spell Check

1/27/2011 03:25 AM

  Good article and you hit the important points.


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