Farmland as an Investment

Fortune magazine just had a interesting article on farmland being a great investment, both in today’s environment over the last 5o years.  Part of the article was about investing in US farmland and part was about investing in farmland internationally.

I think the themes in the article hold true.  We will always need to eat and they really are not making any more farmland (we may be converting some, but we probably lose more to urban growth than we convert).

I think over the next generation, farmland will continue to do at least as well as other mainstream investments. 

My biggest concern is that certain hedge funds may start to invest in farmland and drive up the price to create a bubble.  This can distort the real return and cost farmers money in the short term.  The article mentioned an annual rate of return of 13% to 16%.  I think for a short time period this may be true, but over a longer period of time I think it may be tough to get much more than 10% to 12%, but this is still better than inflation and you can enjoy more than a share of stock or bond.

My other concern that normally when farmland is on the cover of a magazine like Fortune that we are usually at the top of the investment cycle for farmland at that time.  We shall see.