Why farmland is not an easy investment
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Why farmland is not an easy investment

Farmland prices in the US have been steadily increasing over the past five years. The average cost of an acre of farmland in the US is $2,350 compared with $2,010 in 2007, although that varies considerably by region. In Champaign, Illinois, and the corn belt, land value is rocketing. One acre of farmland in the corn belt commands $4,590 compared with $3,290 in 2007, and is up 15.9% on last years’ prices. Is it a bubble? The US Department of Agriculture’s chief economist, Joseph Glauber, thinks not. “There are solid fundamentals in that farm income is growing and interest rates are low. If that stops, land prices will flatten out.”

Patrick Trainor is vice-president at Westchester Group Investment Management headquartered in Champaign. The firm is one of the largest agriculture asset managers in the country, buying crop land for clients in the midwest and leasing it back to local farmers. When Westchester was founded in the late 1980s investors were high-net-worth individuals, but now the majority are large institutions. In October 2010, TIAA-CREF took an 85% stake in the group, and the firm has about $1 billion in assets under management and manages 600,000 acres of farmland. "One core principle behind our belief in farmland as an investment is the fact that there is growing demand to feed the population of the world, while there is only a finite amount of land. Every piece of land in the US that is highly productive is in production," says Trainor.

Large institutional investors such as Westchester are few and far between, however, despite reports that investors are throwing themselves into buying land. One would think with few other places to put money, investors would have greater appetite, but buying up farmland to lease back to farmers is not an easy strategy. Collecting land to have enough scale to run a fund is also no small feat.

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