Analysts say private capital funds and institutional investors are increasingly becoming bigger players in acquiring agricultural real estate, whether high net worth individuals, pension funds, insurance companies or farmland-focused real estate investment trusts.
Farmland is good for the mix in portfolios, said Chris Morris, a manager at LandFund Partners II, a private farmland investment fund based in Nashville, Tennessee. "It provides a current yield which is pretty attractive … in a world where Treasurys are below 2 percent."
Experts say farmland also serves as a hedge of sorts against inflation.
"All of the crops grown on row crop farmland at least are dollar denominated, so if we were to get an inflation scenario then those rents go up and therefore values would also go up," said Morris. "So it's kind of a very versatile asset in a portfolio for all those reasons."
LandFund's first two limited partnerships are fully deployed and own cultivated row crop Delta farmland in Mississippi and Arkansas. Morris said owning farmland in those two Mississippi Delta states means the fund gets real estate for "one half of what it would be for an acre in the Midwest."
Farmland values in the Midwest fell 1 percent in the fourth quarter from the third quarter of 2015, according to a Federal Reserve Bank of Chicago survey of nearly 200 agriculture banks across the Seventh Federal Reserve District, which includes Iowa and most of Illinois, Indiana, Michigan and Wisconsin. The report also revealed that in Wisconsin, a state enjoying growth in the dairy sector, there was a small rise in the fourth-quarter ag land values compared with a year ago.
In the Corn Belt, most of the landowner investors have been traditional land accumulators that tend to lease out the land and are looking for more acres. But lower commodity prices are hurting cash rents for cropland and recent projections from the U.S. Department of Agriculture point to further moderation this year in rents along with lower farm incomes.
Overall, the USDA forecasts that the value of ag-related real estate will be down 1.2 percent in 2016. The government projects net farm income will decline by 3 percent.