As a farmland auction winds down, the bidding usually slows. In the online environment we live in today, increments get smaller, the clock resets again and again, and everyone watching the screen wonders who’s still in the fight.
Each bidder has their own motivation. One might be the neighboring farmer hoping to expand their operation. Another could be an investor with no agricultural experience studying soil maps and rental rates.
So far this year, I can say investors have been outbidding farmers more than in recent memory. This is a pattern I saw develop the last time we experienced significant stress in the farm economy. Why?
Well, rents are still good. Land values are stable, though down in some instances. From outside of agriculture, many see this as a good time to buy. From an investor’s standpoint, there is less competition from farmers, but at the same time, there are plenty lined up to rent anything that does get purchased.
It is no secret why a farmer or farm family might want to buy farmland. Those motivations are obvious. But why do some investors choose to buy farmland over stocks, bonds or precious metals?
Benefits to buying
Productive farmland with fertile soils, reliable water and favorable climate conditions has historically appreciated, or at least held its value over time, even through major financial events like the Great Depression and the inflationary years of the 1970s.
It is a tremendous store of wealth that weathers major economic headwinds better than many other investments, similar to gold and other precious metals. On top of that, it provides annual income.
There also is the factor of scarcity. If you’re reading this article, you’ve probably heard something along the lines of, “Buy farmland; they are not making any more of it.”
In reality, we are losing agricultural land every year. Some studies estimate that more than a million acres are lost annually in the U.S. due to urban sprawl and development. I would venture to guess that number is increasing with the growth of data centers, distribution warehouses and other industrial facilities being built across the rural countryside.
There also is the simple reality that people need to eat. Land plays a role in food security and long-term stability.
All of these factors make farmland attractive to capital outside of agriculture, and help explain why we are hearing more about investors buying land.
But make no mistake: While there may be more investor activity today than a year or two ago, farmers still make up most bidder registrations and successful buyers at our auction sales once everything is settled.