Is The Investment Community Getting Back Into Farmland?

Wall Street is still pretty high on farmland. Though some of the luster started to wear off when prices were sky-high in the last few years, the market is still seen as a solid place for investment money. Now there are new signs that land is still attractive to investors looking for a safe place for their money to grow.

"Farmland has emerged as an attractive investment class due to many positive fundamentals, yet a mere fraction of investor demand has been met due to aggressive farmer bidding and buying," says Steve Bruere, Clive, Iowa-based CEO of Peoples Company, a land brokerage and farm management company.

The decline in grain prices and corresponding slide in land prices is largely behind the resurgence of investor interest in farmland. Land values have fallen in the last year, though not nearly as much as grain prices have; the Iowa Farm & Land Chapter #2 Realtors Land Institute's (RLI) recent survey of that state's ag lenders and land brokers revealed a 3.4% decline in values across the board since the group's last report in March, which showed a decline of 5.4%, yielding an almost 9% decrease overall since September 2013.

"Factors contributing to current farmland values include lower commodity prices and increasing interest rates. Other factors include: lack of stable alternative investments, cash on hand, and limited amount of land on market," says Kyle Hansen, ALC, spokesperson for the Iowa RLI Chapter #2.

On one side of the spectrum, investors bullish on the farmland market say the lower prices make it a good time to buy land, while those with a bearish attitude are more inclined to call the slide in values a good reason to exit the market. But in the broader context of farmland compared to the grain markets -- some of which have lost half of their value in the last year -- a decline of less than 10% shows the former market still has strength despite the weakness in the grains and the decline in general farm income those lower prices have caused.

Put that market dynamic together with lower farmer demand for farmland -- as more farmers work to tighten budgets to offset the grain market decline -- and it adds up to more space for the investment community to reenter the farmland market. That is what's starting to happen, says Harlan, Iowa-based land broker and investment specialist with Peoples Company, Ron Beach. In fact, there's evidence that investor interest in farmland is higher than it's ever been.

"The tide is turning, and the investor's share will now trend back up. Farmers are becoming more cautious, lack of profits and shrinking working capital are concerning, farmland prices have leveled off and, in some areas, have declined," Beach says. "Investor interest and demand, from both individuals and institutions, is at levels higher than we've ever experienced. During the past five years, long-time investors have been joined by a wide range of investment funds, partnerships, REITs, family offices, and high-net-worth individuals."