We’re used to thinking of escalating rents as an urban problem, something suffered mostly by the citizens of booming cities. So when city people look out over a farm—whether they see corn stalks, or long rows of fruit bushes, or cattle herds roving across wild grasses—the price of real estate is probably the last thing that’s going to come to mind. But the soil under farmers’ feet has become much more valuable in the past decade. While urban commercial real estate has skyrocketed in places like New York, San Francisco, and Washington, D.C., powerful investors have also sought to turn a profit by investing in the most valuableruralreal estate: farmland. It’s a trend that’s driving up costs up for the people who grow our food, and—slowly—it’s started to change the economics of American agriculture.
Think of it this way:If you wanted to buy Iowa farmland in 1970, the average going price was $419 per acre, according to theIowa State University Farmland Value Survey.By 2016, the price per acre was $7,183—a drop from the 2013 peak of $8,716, but still a colossal increase of1,600 percent. For comparison, in the same period, the Dow Jones Industrial Average rose less than half as fast, from $2,633 to $21,476. Farmland, theEconomistannouncedin 2014, had outperformed most asset classes for the previous 20 years, delivering average U.S. returns of 12 percent a year with low volatility.
That boom has resulted in more people and companies bidding on American farmland. And not just farmers. Financial investors, too. Institutional investors have long balanced their portfolios by putting part of their money in natural resources—goldmines and coal fields and forests. But farmland, which was largely held by small property owners and difficult for the financial industry to access, was largely off the table. That changed around 2007. In the wake of the stock market collapse, institutional investors were eager to find new places to park money that might prove more robust than the complex financial instruments that collapsed when the housing bubble burst. What they found was a market ready for change. The owners of farms were aging, and many were looking for a way to get cash out of the enterprises they’d built.
And so the real estate investment trusts, pension funds, and investment banks made their move. Today, the United States Department of Agriculture (USDA) estimates that at least 30 percent of American farmland is owned by non-operators who lease it out to farmers. And with a median age for the American farmer of about 55, it is anticipated that in the next five years, some 92,000,000 acres will change hands, with much of it passing to investors rather than traditional farmers. […]