Why Investors are Turning to Farmland

April 26, 2021

As a prudent investor, you may already have some real estate investments in your portfolio, but your experience is largely in commercial or residential properties. Now that you have an eye on expanding your holdings to include farmland, it’s natural to want to know more about the asset many investors are turning to in 2021.

Putting Farmland Into Context

In the United States, approximately 897,400,000 acres of land is devoted to farmland, according to the latest figures available from the U.S. Department of Agriculture. Experts estimate that the total number of farms is 2,023,400, a decline of 5,800 farms since 2018, while the average size of a farm has gone up by 1 acre, to 444 acres.

The USDA classifies farmland into six tiers, or sales classes. Each class is based on the total product sales plus any payments to farmers from government programs. The classes are:

* $10,000 (30.5%)

* $100,000 (6.7%)

* $250,000 (4.4%)

* $500,000 (3.6%)

* $1,000,000 (3.9%)

The government classifies smaller farms earning $1,000-$9,999 as “point farms,” meaning they didn’t have at least $1,000 in sales in the current year, but have made sales of at least $1,000 in previous years. Point farms accounted for 51.0% of farms.

As you can see, the majority of farmland in the United States takes place in a large number of smaller farms, with only a fraction bringing in at least $1 million annually.

Investors are turning to farmland because of the great returns. The Motley Fool noted that “The primary reason more investors are turning to farmland as an investment opportunity is that it has a long history of producing solid returns.” The returns typically comprise increases in farmland value and money earned from crop yields payments for farm rent.

Farmland in America has grown in value by approximately 6.1% annually (excepting five years during the past half-century), per the Motley Fool. Farms have shown positive returns yearly since 1991, making them very attractive to investors. The USDA-reported 11.5% annual average return from farmland actually “outperformed all other asset classes except the Dow Jones REIT Index during that time frame.”

Main Reasons Investors Turn to Farmland

Three chief reason people will want to invest in farmland are:

* Farms serve as a hedge against inflation. As it generates commodities (like grains), rises in inflation will inflate the value of the land itself as well as the income the farm produces.

* Farms are seen as a low-volatility investment, with the Motley Fool explaining that agriculture compares favorably with lower volatility than the S&P 500, 10-year Treasury Bonds, the Dow Jones REIT Index and that old familiar standby, gold.

* The value of farmland doesn’t correlate with stock market movements. Consider that for every year that the S&P 500 went down in value, farmland generated positive cash flow.

If you’re not going to purchase a farm directly, you may find the best approach is fractional ownership, where you buy shares in real estate investment trusts or REITs. This purchased farmland earns money with rent coming from farmers who lease it.

Making Farmland Part of Your Portfolio

Financial advisors often speak about the value of really knowing what you’re getting into, with proper research and due diligence before deploying cash for an investment. You already are aware that investing in something as fundamental as food is seen as stable since everyone needs to eat. Now, it’s time to analyze opportunities for farmland investing. For each farmland crowdfunding deal FarmFundr makes available, extensive due diligence is performed. Our user-friendly portal has all the information you need to learn about the deals available from financial models to webinars with the managers. Explore farmland investment opportunities today.