Real Estate's Last Frontier: The Farm

For many involved in the Real Estate industry, the past two to three years has been an unsuccessful few years. What was once a hot industry could now be considered a cold product. While there are a few areas like the condominium market which haven’t taken a complete turn for the worst, one area of the market often overlooked is now catching the attention of savvy investors. Farmland is now one of the only areas of real estate which is on the rise, particularly in the Midwest.

Why is it that farmland value is on the rise? The answers have a few components: gasoline, export and the shortage of land in urban areas. As was written in the New York Times, “The Fed can always print more money but it can’t create new farmland, which has generally been rising in value since the late 1980s”. According to the New York Times, American farmland has appreciated in value by 50% between the year 2002 and 2005. Farmland is not something that anyone, even the government, can pull out of thin air. Existing areas of farmland are a valuable piece of real estate. What I mean by gasoline influencing the rising cost of farmland is that there is an increasing demand for bio-fuels. With the ongoing war and the pending oil crisis, alternatives to gasoline, such as corn-based Ethanol (although not a terrific alternative to gasoline) have been developed and are being researched. As is said in the description, Ethanol is made from corn, which means that farmers need to produce copious amounts of corn in order to have a considerable amount of Ethanol produced. Exports are another way that farmland is making money. With our weakened dollar, international trade has increased. Pistachios and Almonds have been selling very well, leading to a 28.2% three year annualized return according to the Hancock Agricultural Investment Group. This increase in the sale of nuts could be attributed to research which has discovered that eating nuts can promote cardiovascular health.

Not only is there money to be made by buying farmland, but also in investing in farmland. The Hancock Agricultural Investment Group manages portfolios for large investors in farm land and reports a twenty percent or more increase in returns for the past three years. This type of investment is not something that just anyone can do. The minimum investment is something in the upwards of forty million dollars. Smaller budgeted investors apparently need not apply.

If you are a smaller budgeted investor, there are ways to try to make money in farm land. Investors could go through companies to do commodities-tracking mutual fund or a commodities-based exchange traded fund. In a sense it is like an agricultural stock market. Many companies are starting to create branches that specifically cater to investing in farmland, like JPMorgan, who like many other financial service providers, already manage farmland.