Historical Success of Farmland Investments

May 10, 2021

When you examine the current types of investments available to you, how much attention have you been paying to the nation’s great swaths of vital, fertile farmland? The soil of the United States serves to feed not only everyone here but millions of people around the world through a complicated import-export system.

Financial advisors typically counsel clients to invest in things they can understand and that have a clear market. Farming is a great example. After all, everyone needs to eat. And we all rely on agricultural products for everything from food to fuel to the clothes on our backs and so much more.

Before you commit to putting your money into farmland, you’re advised to learn about its success rate over the years. That gives you the perspective to anticipate how your investments might pan out.

Own Bonds? The Volatility Is Similar to Farmland Investments

Maybe you already have some U.S. bonds in your portfolio, because of their reputation for being steady and stable. If so, you are in a position to appreciate the owning farmland too. 

As the Financial Times pointed out, between 2000 and 2018, “U.S. farmland returns have experienced a similar level volatility as U.S. 10-year bonds and, significantly lower volatility than equities. Despite its comparable return volatility, farmland has historically outperformed 10-year bonds, delivering significantly higher yields.”

With high returns and a dampened volatility, farmland accounts for about $9 trillion of the worldwide economy, according to Forbes, which explained that “the number of global investment funds specializing in food and agriculture assets jumped from 38 to 446, with current assets in excess of $73 billion.”

Furthermore, per NCREIF data, between 1992 and 2016 shows that farmland yielded a return of 12% compared to real state investments with 8.7% and the Russell Stocks Index 3000 reaching 8.8%.

The average age of farmers in the United States is reaching 60, which means that as they start to retire in the coming years, a large number of agricultural real estate will go up for sale. 

As farmers age out, approximately 400 million acres of farmland will be bought and sold over the next two decades, per Forbes. It’s easy to see why investors will view historical stability and a future predicted rise in farmland sales to be good motivations to add agriculture to their holdings.

How does the value of farmland appreciate in the United States? According to Successful Farming, “Throughout the past 20 years, U.S. farmland has nearly tripled in value. In 1998, it averaged $1,000 per acre. The 2018 average was over $3,000 per acre.” For context, cap rates for conventional farmland were at 3% while bond yields were at 3%. Organic farmland operations have a cap rate of 5%.

The U.S. Department of Agriculture keeps a close eye on farmland economics, with ongoing data collection. It found that “farmland values began rising in 1988 and, except for single-year declines in 2009 and 2016, have continued rising.” The USDA adjusted historical data to account for inflation and discovered that farmland value started to increase beginning in 1993.

Joining the Ranks of Proud Farmland Investors

When you consider the consistent success rates of farmland overall, it may make sense to invest in farmland yourself. Putting your assets in agriculture will go more smoothly when you rely on experts who have in-depth knowledge of historical patterns in farmland and also experience owning and managing farmland themselves. To learn more about available fractional farmland investment opportunities, create a complimentary FarmFundr account here.