Is Farmland Too Good of an Investment
I have written many times about how farmland has been a good investment for at least the last 10 years or so. Most of this data has been gathered from sources directly related to farming, however, I have started to notice a trend about reporting on farmland as an good investment in mainstream sources such as Business Week.
This trend continues with a recent article in the Wall Street Journal about buying farmland for income. The article indicates that by buying farmland, an investor should receive a current 3-5% yield plus up to another 5% in annual price appreciation over the term of the investment. This comes from R. Dennis Moon with US Trust, a unit of Bank of America.
One of the challenges right now is finding quality land. The supply is smaller than usual since farmers and their heirs are keeping the land they otherwise might have sold, in order to book the rental income. The number of qualify farmland for sale appears to be down about 30-40% according to Loyd Brown of Hertz Farm Management, Inc. of Nevada, Iowa. Even medium quality land is down by this amount.
Now that these articles are now starting to appear in main-stream sources, my contrarian sense is that farmland may be starting to peak as an investment for investors. This may end up being good for farmers if the speculative pricing gets eliminated from land values. We can wait and see how it turns out.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
Well, I would say that the challenge is finding good land at a price that makes sense, since it does seem like the supply is there, but the price too many times just doesn’t make economic sense with the price of beans and corn.
Granted, since I’m in Iowa, the most often indicators of ‘quality’ land are the corn suitability rating (csr) and average crop yields per acre. But, those measurements are just of the potential of the land, not how productive it is at any one time, which seems to be why people use soil tests for fertility.
I would also agree that farmland does seem like it has hit an investment peak over the past two years, with the land prices plateauing (and people wanting far too much for poor land), the write ups of it as an investment in multiple major media outlets (bring it to attention of people that frankly, have no idea what they are doing, cheap money (which is a bit harder to obtain) and the current price of the outputs.
Granted, I am not a farmer and have been trying over the past 5 years to educate myself about farming and farmland. Sadly, I have yet to find a concise resource on the topics. Most of my education has come piecemeal from farming boards, some short investment blurbs, bits of books and far too much research on the internet. So, I’m happy to have found this blog for the information it provides.