Opinion: Farmland proves itself once again
Note: Steve Bruere is the president of Peoples Company, a real estate and land management company in Clive, Iowa.
When COVID-19 first hit, I was incredibly concerned about what it might mean for farmland markets. With demand destruction in the ethanol industry, packing plants shuttering and the livestock industry in turmoil, crude prices plummeting to below zero and a multi-year downward trend in commodity prices that was exacerbated by trade wars, I prepared myself for an incredibly challenging land market in 2020. COVID-19 had all the makings of the final straw for farmland values.
As I contemplated where land values might go, I felt there were two potential outcomes. We would either see continued pressure on commodity prices and more land inventory, which would cause cap rates to increase and push land values down, or we would see the massive money supply inflate farmland prices by lowering the return expectations as people looked for a safe haven investment to preserve wealth.
The one thing I didn’t fully appreciate is a truth I’ve known my entire life: Farmland is the best investment in the world.
No matter what happens on Wall Street, the value of farmland won’t be cut in half overnight. It can’t be. It doesn’t know how. Regardless of the political crisis, economic crisis, or pandemic, you can always walk farmland. You can always work it. You can always touch it. I’ve preached these truths my entire career, but only recently did they become apparent to many Americans.
As the stock market collapsed and commercial and residential real estate markets panicked, farmland investments once again became the safe haven for which smart investors yearned. In a world of social distancing, there was comfort knowing you could go to your farm and fish,hunt and hike. There was comfort knowing that if the food supply fell apart you owned a piece of land that could feed your family. There was comfort knowing the value of your asset would not plummet overnight. Thanks to the federal crop insurance program, there was comfort knowing your tenant could pay their rent.
As we got deeper into the pandemic, our phones started to ring with investors looking to put capital into farmland. We worked with families who were looking for a great camping spot and major institutions looking to allocate significant sums. Suddenly, folks who were too busy with their careers to focus on farmland had the time to look at farms. I noticed a new appreciation for farmland that was more than just financial returns. People were finally recognizing the benefits I’ve known and enjoyed all my life.
While commodity prices and monetary policy are the real drivers of land values, COVID-19 has shined a light on farmland as one of the most valuable asset classes in the world. More than ever, investors appreciate the stability and the benefits that go along with owning farmland. I feel we are finally beginning to see those attributes get capitalized into farmland values. Of course, savvy investors have understood this for generations. Highnet-worth families have consistently invested in trophy properties that provide benefits that go far beyond traditional financial returns.
Long story short, money is moving out of higher risk investments into farmland. The returns may not be as sexy, but they are rock-solid. The general sentiment is that as trade tensions ease and agricultural productivity improves, returns can only go up.
While it saddens me to see the hardships that those working the land are enduring, the silver lining is that the American consumer is finally valuing agriculture. People now see that a safe food supply matters. People now recognize the vital importance of those who work the land. People finally understand that our soil is one of our greatest strengths — and our best investment.