Advice on Investing in Farmland in Today's Economic Environment
Thursday, August 25th, 2011
When the equity markets go crazy like they have in the past few weeks, I invariably hear from friends and investors asking how current events may affect farmland investments, and what strategies might be in order. Here are three things I'd suggest in the current environment:
1. Follow the "insiders."
In the equity markets, the financial press has long been obsessed with the actions of "insiders," and often with good reason. When the people who know the most about a company are accumulating more stock, that can be a positive sign for others. But what about farmland? Who can we look to as the "smart money?"
Local farmers and investors, that's who.
Over the years, I've found that it's a good idea to watch what local farmers and investors are doing. These are the people who best understand the opportunities (and any liabilities) of investing in agricultural land, and these savvy individuals are firmly on the "buy" side. These local investors (many of whom own relatively small amounts of land) include not only farmers, but also lawyers, bankers, dentists, teachers and others who see the solid, stable returns that can't be equaled in any other investment. We're even seeing "retired" farmers who are starting to put money back into farmland, because it's simply a more attractive investment.
2. Consider increasing your ag land diversification.
Equity investors have long understood the value of diversifying among different industries, company sizes and even nations. Thanks to the liquidity provided by strong demand and today's auction methods, it's more feasible to diversify among different types of agricultural land. Right now, Midwestern corn and soybean is obviously on a roll. But climate and market factors will reward different types of land at different times. You could, for example, sell properties that have done well and diversify by purchasing with some Kansas wheat or California vegetable land. Once you focus on the wide range of agricultural land investment choices, the possibilities are endless.
3. Ignore the news - at least the popular press.
As a rule, what you're seeing on TV and even reading in newspapers has nothing to do with your farmland investment. Allowing it to influence financial decisions will almost always lead you in the wrong direction. The other day, a major network interviewed several national investment writers about the recent financial turmoil. One indicated he didn't have any better ideas than putting money under your mattress, and not a single one ever mentioned farmland. You really want to take advice from those guys?
Murray Wise Associates