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Investors Looking to Farmland, Institute Warns

March 29, 2014
Minnesota Public Radio
  1. LISTEN Investors looking to farmland

A California think tank has sounded an alarm about a new interest in farmland. The Oakland Institute warns that Wall Street investors have their eye on America's agricultural real estate, lured by stable or increasing land values and the prospects of increased meat consumption and the use of farm products for energy.

Investor interest could drive up land prices for young farmers and threaten rural economies, the institute warns, adding: "And of course, you don't have to take on the risk of farming when you buy farmland; you can also collect rent checks from the people who take on that risk." From an analysis on the Oakland Institute website:

Corporations are starting to buy up US farmland, especially in areas dominated by industrial-scale agriculture, like Iowa and California's Central Valley. But the land-grabbing companies aren't agribusinesses like Monsanto and Cargill. Instead, they're financial firms: investment arms of insurance companies, banks, pension funds, and the like. In short, Wall Street spies gold in those fields of greens and grains.

Why are they plowing cash into such an inherently risky business with such seemingly low profit potential? For Wall Street, farmland represents a "reassuringly tangible commodity" with the potential for "solid, if not excellent, returns" ... something clients are hungry for after being recently burned not long ago by credit-default swaps and securities backed by trashy mortgages. As the saying goes, you can't make more land; and as the Oakland Institute notes, "over the last 50 years, the amount of global arable land per capita shrank by roughly 45 percent, and it is expected to continue declining, albeit more moderately, going toward 2050." ...

The report notes that over the next 20 years, nearly half of US farmland — about 400 million acres — will be up for sale as our aging base of farmers moves into retirement. So far, Wall Street cash is moving onto US farms like a stream; financial firms own just about 1 percent of total acreage, and most farmland is still bought by farmers, not institutional investors, the report states. But as more prime land enters the market, the hot money could soon flow like a gusher. By mid-2013, farmland was such a hot commodity that institutional investors were complaining of a tight market for prime farmland — that is, they had more money committed to buying farmland than they could find attractive deals for. But the supply of prime farmland for sale will expand as farmers retire in the coming decades, and Wall Street looks poised to move into the market.

We discuss the possibility and plausibility of Wall Street buying into America's farmland and what effects this might bring.