Farmland Yields Smart Investment

By Steve Dinnen

Stocks are swooning, bonds are nothing to write home about, and even cash is no safe haven in these days of mounting inflation. Look around you to the nearest cornfield. Or bean field. Either way, farms as an investment can make sense as a way to bolster returns, counter inflationary pressure and diversify assets.

In a report from advisory group Green Street, released by Barrons, U.S. farmland in a 25-year period ending in March 2021 was estimated to have posted an average annual return of 11.2%. Compare that with stocks tracked by the S&P 500 Index, which showed a return for the same period of 9.6%.

“Farmland has been very, very profitable,” said Doug Hensley (pictured), president of Hertz Real Estate Services in Nevada. “It’s been a really positive asset class forever.”

There are 2 million farms in the United States, and every year tens of thousands of them go up for sale as farmers die or retire and sell their property. Hensley, whose firm sells farms, said about 30% of Iowa farms that sell go to investors. Buyers can be anyone. They can be local or spread across the country, although he sees very few farms sold to foreigners. These investors would then hire a firm such as Hertz to manage the farm or perhaps rent cropland to neighboring farmers.

There are lots of different crops—wheat, rice, sorghum, cotton. In Iowa, Illinois and most of the Midwest, corn and soybeans are king (they alone represent 50% of all U.S. cash crop sales), so in this respect, a handy way to size up the ability of the land to deliver a bumper crop is measured by its corn suitability rating, or CSR.

The higher the CSR, the better your chances. The higher the selling price, too. The Minnesota Crop Productivity Index (CPI) ratings also provide a relative ranking of soils based on their potential for intensive row crop production. Every farm should carry a CSR-CSR2 rating, which in Iowa will range from the 40s in the south of the state to the 80s in northern counties that are home to some of the most fertile farmland in the world.

Yes, prices fluctuate, both for land and crops. But Green Street said it’s not as volatile for crops as for stocks. So think it over, said Hensley.

“Farmland competes against all assets classes,” he said.

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