How to Invest in Farmland
If the closest you get to farming is visiting your grocery store’s produce aisle, you can still invest in farmland. The increased worldwide demand for food has put farmers under pressure to grow more food faster to feed a growing population. Short of quitting your job and buying your own plot of ground, you can invest in a professional management company that owns and operates farmland. Alternatively, you can invest in a hedge fund or purchase stock shares to add farmland to your investment portfolio.
The Midwest states of Iowa, Nebraska, Illinois and the Dakotas have some of the best farmland for growing corn, wheat and soybeans. As a result, U.S. farmland prices have increased more than 1,200 percent since 2000. Depending on the location and soil quality, the average price for farmland starts at $2,000 per acre and goes upward. Whether you find your own farmland or use a real estate agent, you want to consider how close the land is to local markets and major food processing companies, its soil quality and water availability, the condition of the buildings on the land and any existing easements or encumbrances.
Private Investment Firms
You can purchase shares in privately owned investment companies that hold and manage farmland. These companies purchase large tracts of prime farmland acreage, then work with local farmers who farm the land. These companies purchase raw land that is suitable for farming or land that is already cultivated. These companies analyze each parcel to determine the potential risk and return. Privately owned farmland companies spend million of dollars to purchase choice farmland. As a result, the minimum investment to purchase shares can be more than a million dollars.
Purchasing shares of stock in companies that own farmland is a less expensive way to own farmland. These foreign companies purchase and operate large-acres farms either in their own country or in a particular region. They also purchase and hold farmland for future development. The shares are listed on the U.S. stock exchanges, and you can trade them through your stock brokerage account. Several of these companies pay regular dividends to their shareholders.
Another way to invest is to buy shares in hedge funds that own farmland. The number of hedge funds buying and holding farmland in their portfolios is increasing. Some hedge funds purchase U.S. farmland, while others hold farmland in foreign countries. The goal is to let the farmland act as a hedge against future inflation while profiting from the current run-up in farmland and food prices. Farmland hedge funds pay their shareholders steady streams of income and capital gains.
Based in St. Petersburg, Fla., Karen Rogers covers the financial markets for several online publications. She received a bachelor's degree in business administration from the University of South Florida.