For farmers gearing up to harvest millions of acres of land this fall in the face of low commodity prices, the rows of corn, soybeans and other crops have long been viewed as key to their survival.
But increasingly those same acres are drawing the attention of Wall Street investors looking to tap into those fields for profit.
Investors have turned to farmland as part of a sweeping push into physical assets — everything from lumber, hotels and apartments to parking meters, bridges and highways.
Farmland is becoming particularly attractive as the global population increases, the middle class expands and the rate of new farmland available worldwide dwindles. All this, proponents say, bodes well for gradually higher commodity prices that will trickle down to the farm, increasing the value of the land.
“You can build new office buildings. You can build new apartment buildings, but it’s hard to create new farmland out of nothing,” said David Rodgers, senior real estate research analyst with Robert W. Baird & Co. “It’s always been attractive, but I think it has come into focus a little bit … because of how important agriculture is to not only the food base but other components of the global economy.”
The farmland real estate market is valued at $2.5 trillion, with institutional ownership likely responsible for less than 1 percent, according to Bruce Sherrick, professor of farmland economics at the University of Illinois’ TIAA-CREF Center for Farmland Research.
But that small number is poised to grow.
A study released last year by the Oakland Institute, a California think tank, estimated as much as $10 billion in institutional capital is looking to acquire farmland.
And consulting firm Greenwich Associates surveyed 100 fund executives in 2014 and found that a third of respondents said they might invest more in farmland through July of this year. It was the second most popular investment among 13 categories, behind only energy.
That comes as some farmers are already complaining about farmland prices being driven up beyond their ability to turn a profit.
Farmland values in Iowa and other Corn Belt states have soared since 2000, as strong commodity prices (until recently) have boosted the financial coffers of farmers and ranchers, giving them more money to buy land or upgrade equipment. In Iowa, land prices have risen almost 330 percent since 2000, according to Iowa State University.
The growth has captivated a number of investment groups:
- One of the largest, TIAA-CREF, which oversees retirement assets, started investing in farmland in 2007. It has expanded its investment in the sector and now manages about 1.2 million acres topping $5.5 billion.
- A pair of real estate investment trusts, Gladstone Land Corp. and Farmland Partners Inc., have gone public since 2013, with another, American Farmland Co., filing for an initial public offering in June.
Dozens of additional institutional investors have plowed millions of dollars more into cropland in recent years.
“It runs counter to what I think certainly has historically been a major component of America’s policy toward agriculture, which was that we were better off if the land was in the hands of the people that farmed it,” Drake University law professor Neil Hamilton said. “Creating opportunities to fund farmland ownership and creating opportunities for people to become farmers are still major parts of what we do” through government programs, he said.
Farmers have grown increasingly concerned that real estate investment trusts, pension plans and other farmland investors lack the close ties and direct knowledge of what it takes to maintain the property and implement necessary conservation measures to preserve it. They also worry their involvement has the potential to shut out local farmers by outbidding them when land goes up for sale.
In Corning, Ia., farmer Ray Gaesser said an investment group purchased a parcel of land down the road from his corn and soybean farm last year and rented it to someone living more than 100 miles away.
The renters paid more than the going rate to work the land, he said.
“It did put a young farmer out of business,” said Gaesser, who said the producer he knows no longer looks to agriculture as his primary source of income. “I think my biggest concern is they don’t care so much about the land. They care more about the investment.”
Justin Dammann, a 35-year old corn and soybean producer from Essex, Ia., said local ownership of farmland also is good for the community because it keeps more of the profits and tax revenue in the hands of local residents. He said a law restricting corporate ownership of Iowa farmland has been good for the state and its producers.
“We farm this land, and if we are profitable that money goes back into our own farms, into our own communities, into our own schools, into our own churches,” Dammann said. “If an investment company from New York comes out and buys land in Iowa and they make profits in that land, those profits go out of state and they are not realized here.”
Proponents of corporate land ownership contend the owners still need to rent the land to a local farmer who’s knowledgeable about taking care of the operation.
Their involvement also offers a path for an older farmer — the average age has increased to 58 according to the Agriculture Department — who may want to take advantage of high land prices or knows that when he retires he might not be passing the operation to another family member.
In addition, institutional investors downplay the willingness to overpay for the property, cautioning that paying more to buy the land eats into future potential profits.
“I think it’s an unfortunate and somehow easily propagated myth that the nature of the buyer impacts the price in a way that is negative to the asset,” Sherrick said. “I’ve never seen it become less efficiently operated when somebody who has more than one farm in a fund acquires more farms.”
Iowa, along with a handful of other predominately Midwestern states, have taken steps to keep corporations off the farm.
Iowa passed its law in 1975, and has since updated it to prevent corporate entities other than one established by a family farm from having more than 25 people who are shareholders or acreage topping 1,500 acres.
However, individual investors in the United States are not banned from buying land for themselves in the state.
Iowa Attorney General Tom Miller, who worked on the law when he was a lobbyist for the Iowa Farmers Union in the 1970s, defended the measure and said the state has no plans to repeal it.
“We don’t know how much corporate ownership would have been had there not been a law, but clearly there would have been some and maybe a considerable amount,” said Miller. “I think this has been a good law and has been healthy for Iowa, healthy for farmers and the farm community.”
Farmland Partners Chief Executive Paul Pittman, who grew up in a farm family and graduated from the University of Illinois with a degree in agriculture during the 1980s farm crisis, called corporate ownership restrictions in Iowa and other states “unfair” and said they remove a buyer who could help prop up land prices when they are falling.
He pointed out that land prices in Illinois, which allows corporations to buy acres and where Farmland Partners is an investor, have not fallen as much as in Iowa during the recent downturn.
“I can’t, for the life of me, figure out why somebody thinks it’s a good public policy to keep school teachers and factory workers and police officers and firemen from pooling their money and buying farmland, but if you’re a Forbes-list guy you can buy anything you want,” Pittman said.
Farmland Partners focuses on establishing long-term relationships with its tenants and plans to hold the land it buys indefinitely. Farmland went public in April 2014, owning 38 farms with 7,300 acres.
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