Farmland values hit 30-year high in 2007

The rise in land and food prices are causing some institutional investors to consider new or increased allocations to agricultural assets.

New data from the Federal Reserve Bank of Chicago has revealed farmland values in the Midwestern US increased 16 percent in 2007—the largest annual increase in almost three decades. Areas surveyed include Iowa, Illinois, Indiana, Wisconsin and the southern part of Michigan.

Rising farmland values were driven by rising crop and livestock prices, especially prices for corn and soybeans as demand for ethanol continues to grow.

The value of farmland throughout the US has surged in recent years. According to the NCREIF Farmland Index, annual total returns were close to eight percent last year from a record 23 percent in 2005, and 11 percent in 2006.

Investment trends related to the rise in value of agricultural assets are covered in the March issue of PERE magazine. The article reports that limited partners to private equity real estate funds are beginning to consider new or increased allocations to farmland-focused funds. “With the good numbers put up on the NCREIF Farmland Index over the last few years, people start to sit up and take notice,” Jeffrey Conrad, president and managing director at Boston-based Hancock Agricultural Investment Group told PERE.

LPs such as large pension funds have already begun to embrace the farmland story. “Today you can go into a number of the very large pension funds in the country and they have some type of farm, agriculture land in their portfolios,” added Conrad. “When you look at pension funds and the long-term liabilities they have in their portfolios, buying farmland is a very good asset for them. It kicks off a nice income stream; historically it’s provided some pretty nice appreciation, and it’s been an inflation hedge. It’s a pretty nice fit for a pension fund or any really long-term investor.”

Private equity real estate firms have sat up and taken notice. New York-based Shermen Capital Partners raised a $138 million agriculture-focused SPAC, Shermen WSC Acquisition Corp. in 2007. “The awareness of [the agriculture opportunity] has happened overnight,” said president Kenneth Moshenek.

A closer look at private equity real estate firms investing in agriculture-related real estate appears in the March 2008 issue of PERE, out now. Click here to learn more.