Farmland Vs. Other Asset Classes

You must be thinking, "Brad, this is all fine and dandy.  But why should I invest in farmland and not put my money in the stock market or other traditional areas."  I would say, good question.  You could do that.  You could do what everyone else is doing in investing.  You could go to the stock market and take a risk that it'll work.  You could go a safer route like large cap stocks, commercial real estate or bonds.  You could do that.  You would make money.  But what if I told you, long term, you're much more likely to see a greater return on cropland than you would on just about any other investing avenue.

Now you may say, "Brad.  I've heard you say the farmland always goes up in price.  How do you know that?  Nothing always goes up in price."  And I would say you are correct.  Cropland has dipped in price once.  But you need a bunch of things to go wrong at once.  And one of them has to be a global issue.  The only time we saw a drop in cropland real estate values was during the 80's.  Two things happened at the same time.  We went into a recession and we put a trade embargo against the Russians.  Why would an embargo against Russia drop prices?  They were our biggest grain exporter.  Once you take your biggest international customer of grains out of the picture, things drop drastically.

"Ok.  So land value almost rises.  But how do I achieve a good return on investment?  Isn't that the whole point of this blog?"  Yes it is.  And here's your answer.  Farmers are often romanticized in the media.  They are often portrayed as simple folk who work 24/7 and only worry about rain fall.  While some of that is true the simple folk thing is dead wrong.  Good farmers are some of the best business men out there.  They understand in today's world they can no longer go out and buy land to farm it on a daily basis.  They instead need to rely on investors renting the land to them.  So to make themselves appealing to investors they have to think like one.  They must make sure the rent on the land not only makes the farmer money but also gives the investor a reasonable return on their investment.  This is why cropland continues to be such a good investment option.  The next two charts will show you how investments in Illinois cropland stack up and the second one will show you how cash rent has risen over the years to make sure investors achieve that return.

Now to tie it all together nice and neat for you.  With the combination of the land value, investors need and cash rent availability, we come up with how you can achieve a return that makes you happy.  When these three things meld together we have a deal.  The final chart brings it all together for you and shows the average net returns in the Midwest over the past 60 years.

Wait! Just one more chart!  ...  Just kidding.