The global recession may have taken a toll on stocks and many other traditional investments, but the value of your farm or ranch land has performed well. In fact, rising farm real estate values are luring investors who are seeking a safe haven from the volatility of stocks.
In its annual report on farmland values, the U.S. Department of Agriculture found a 6.8 percent increase in the value of farmland from 2010 to 2011. USDA put the average value of farm real estate at $2,350 per acre, with cropland values at $3,030 per acre and pastureland values at $1,100 per acre.
Returns like that don’t go unnoticed. Market analysts say investments in farmland have been on the rise in the United States and parts of Europe, Latin America and Africa as global food prices soar. A fund controlled by George Soros, the billionaire hedge-fund manager, owns 23.4 percent of South American farmland venture Adecoagro SA.
Farmland values have outpaced stocks and many other investments since September 2008 when the stock market plunged at the beginning of the recession. Analysts believe farmland values are supported by the growth in demand for food, spurred by the rising middle class in countries like China and India.
But investors aren’t the only ones driving the price of rural real estate higher. Farmers and ranchers are also active buyers, according to surveys by universities and real estate brokers. The rising price of grain is listed as the primary driver of farmland prices in places like Iowa and Illinois. But farmers and ranchers are also lured to real estate by historically low interest rates and the potential for inflation of farmland prices.
USDA’s latest report on farmland values shows prices varied considerably last year depending on region. The report shows a whopping 15.9 percent increase in the Corn Belt region, while farm real estate in the Southeast declined 2 percent over the same period.
The highest land values are in the Northeast, with an average of $4,690 per acre. Farmland in New Jersey averages $12,700 per acre, and in Rhode Island $13,000.
The Mountain region had the lowest farm real estate value, averaging $923 per acre. But again, values vary widely from state to state, with Arizona land averaging $3,500 per acre while Wyoming averages $540.
Irrigation makes a big difference in land values, particularly in the West. Irrigated land in Colorado, for example, averaged $3,160 per acre, compared with $880 for non-irrigated. In New Mexico, irrigated land averaged $5,500 per acre while non-irrigated land averaged $410.
Cropland values across the nation’s midsection increased, reflecting higher grain prices. Values were up by 18.4 percent in Illinois, 23.9 percent in Iowa, 13 percent in Kansas, 17.9 percent in Nebraska and 19.5 percent in North Dakota.
On average nationally, pasture values were up by 1.9 percent, at $1,100 per acre, but again, changes varied by region. Pasture values declined in the Southeast by 8.4 percent, while values in the Corn Belt and Northern Plains regions each increased by 6.6 percent.
Further price declines in both farmland and pastureland are expected over the next year in drought-hit areas such as Texas and the Southeast. Investors who help drive farm real estate values are unlikely to be lured to areas damaged by drought and other natural disasters. And the impact of the drought on real estate values may remain for an extended period of time.