For years now, I’ve wanted to invest in farmland.
Farmland investing is a unique strategy that has a lot to offer real estate investors.
As a property whose value generally doesn’t move in correlation with the rest of the real estate market, a good piece of farmland is a VERY solid place to park your money.
Farmland is one of the few real estate investments that is truly passive, requires very little hands-on ‘management’ from the owner, and has far more demand than there is a supply. Given everything it brings to the table, I honestly wouldn’t mind having a portfolio made up of entirely of farmland if I could.
With that being said, one of the tricks to getting started in this niche of real estate is to figure out which market you should be investing in. There are certain risks and rewards inherent with any area you choose, and a number of variables to consider in the search for a property that will deliver the best possible return on investment.
Why Invest in the United States?
It goes without saying, there are a lot of regions around the world with high-quality farmland and ideal growing conditions (the U.S. is the only place in the world where crops are grown).
Even so, a lot of international farmland investors will start their search in the United States at least two important reasons:
The U.S. Government Respects Property Rights
Something we take for granted here in the U.S. (and in most first world countries) is that the U.S. government takes property rights seriously.
There are plenty of other countries in South America, Central America, Asia, and Africa that have similar (or even better) farmland than the U.S… but the problem is, many of these countries are run by governments that are unpredictable, unreliable and corrupt (among many other negatives).
Of course, the U.S. government has its own set of issues, but one thing they do right is protecting the rights of property owners.
There are some counties in the world where governments are regularly overthrown without a moment’s notice.
Other governments have a reputation for stealing private property for their own purposes. Does this sound like a country where you’d want to invest your life savings?
These are obviously some extreme examples (and to be fair, many countries do have stable governments that protect property rights), but the point is – it’s important to trust the governing body where your land is located, and the U.S. (along with countries like Canada, Australia, and New Zealand, to name just a few) is one of those countries where you won’t have these kinds of issues.
The U.S. Dollar is a Global Currency Accepted Around the World
The U.S. Dollar is still the most popular global trading currency around the world (it currently makes up 64 percent of all known central bank foreign exchange reserves).
Why does this matter? Because it allows U.S. farmers and farmland owners to use a relatively-reliable currency that most of the world knows and accepts.
Other currencies can work too, but when they aren’t used on a global scale (like the Panamanian Balboa or the Brazilian Real), it introduces an added complexity with the conversion of these currencies to one as widely known as the U.S. Dollar.
Starting the Search
Now that we’ve established why the United States is one ideal place to invest in farmland, it’s time to look at several nationwide maps that explain the important variables that give farmland its value.
From a 50,000 foot level, these maps can provide some helpful visual data that displays which areas of the United States are the most (and least) ideal for farming.
Keep in mind, not all crops are created equal. Some plants may thrive in drier conditions, while others may do well in different types of soil. Some may need more sunlight than others, and some may need warmer (or cooler) climates. It’s worth thinking about which crops are likely to be grown on the property you have in mind (along with the expected crop yields and lease prices those types of farmland are likely to generate).
1. Drought Monitor Map
This Drought Monitor Map is an ongoing project from Jessica Blunden at the University of Nebraska-Lincoln. This map is a fantastic resource that lays out a very up-to-date map (updated each week) showing which areas of the United States have been adversely affected by drought.
The U.S. Drought Monitor is jointly produced by the National Drought Mitigation Center at the University of Nebraska-Lincoln, the United States Department of Agriculture, and the National Oceanic and Atmospheric Administration. Map courtesy of NDMC-UNL.
The real beauty behind this map is that it doesn’t just stop with a high-level, nationwide snapshot of the country. You can drill down MUCH deeper to see data tables dating back several years, you can evaluate a time series by state, region, and even by the county (among many other options). You can export most of this data for further analysis, and even download any number of KMZ files to your computer to use with Google Earth.
This is an incredible resource that can offer a very clear picture of which areas of the country have been historically affected by a lack of rainfall (something that can have a major impact on crop yield in any area).
2. Annual Rainfall Map
Even though the website looks like it hasn’t been redesigned since 1994, there is a TON of valuable information on El Dorado Weather, with regard to the average annual rainfall across the U.S.
You can look at a full nationwide map, or even drill down and look closer at each state and county… and it doesn’t stop there.
This website also has the ability to show a live feed of current temperatures around the country, averages around the country for precipitation, extreme weather, wind speed and direction, pressure, sky cover and visibility, frost, humidity, and a lot more (seriously… this is just the tip of the iceberg).
There are only a couple of drawbacks to this map:
- The data on these maps cover the annual averages from 1961 – 1990, so the information isn’t exactly “current”. However, as long as global climate change doesn’t kill us all in the next few decades, I think these maps are still probably a reasonably adequate representation of what the climate looks like in most of these areas today.
- These maps don’t talk specifically about any extended periods of drought during the year (from what I could find, anyway) – only what the total rainfall is in any given area (and unfortunately, when you go for over a month without rainfall – even when the total annual rainfall may be relatively high, that’s still enough to do serious damage to many crops). Luckily though… we also have the Drought Monitor Map (see above). Between these two maps, you can get a pretty good idea for which areas get adequate annual rainfall AND don’t experience much in the way of severe droughts throughout the year.
3. AcreValue Maps
AcreValue.com is a website widely used by farmland brokers, landowners, appraisers, and many other industry professionals for determining approximate values on a per-acre and per-county basis.
It currently maintains data throughout the entire United States with the exception of Hawaii and Alaska. Some of the data is free (like per-acre values and recent land sales figures), and some of it requires a paid subscription (landowner mailing addresses, parcel searches by the owner, searching with advanced filters, and more).
At the very least, it can provide a decent starting point if you’re trying to gauge approximately what farmland values are in a given area. However, just like valuing any piece of vacant land, getting a realistic figure requires a lot more research into the property’s unique characteristics… looking at comparable sales is certainly helpful, but it can almost never give a conclusive valuation for a vacant land property (as much as we all wish it was that simple).
4. Population Density Map
Why is this information important?
Because when farmland is located close to a larger population (as opposed to being situated hours from the nearest town), it inherently has a higher likelihood of being developed in the foreseeable future, which gives it a greater potential value through future appreciation.
Of course, there’s nothing wrong with land in an extremely rural area. From a cash flow standpoint, high quality, high yielding farmland is just as valuable for leasing to a farmer, but if appreciation and/or repurposing the land away from farming is of any concern, this kind of information can be very useful to know about.
Along these same lines, you can also use this map from the U.S. Census Bureau to track the migration of people from county to county, to see whether more people are moving to or away from the area where your land is located. Likewise, this map from Forbes will also give you a visual representation of where people are moving in relation to any given county.
5. UNFAO Soils Map
The United Nations Food and Agriculture Organization maintains digital soil maps that cover most of the world. This is what their map of the United States looks like:
What does all this mean? This article from the USGS explains the map quite well,
The UNFAO soils map of the United States identifies approximately 315 soil units based on their physical and chemical composition, their topographic situation, and the local climate. The soil units were ranked using a soil fertility index known as the Fertility Capability Classification (FCC) system (Buol et al. 1974; Sanchez et al. 1982). This system provides a basis for comparing and rating soils worldwide for their suitability for agricultural use. The ranking system assesses the textural, structural, chemical, and climatic characteristics of the soil that have a direct relationship to fertilizer, plowing, and irrigation requirements for successful farming. by their number of agronomic limiting factors. Soils with a high number of limiting factors are problematic and require remediation for agricultural production. The best soils for agriculture have no or few limiting factors.
For our analysis, we ranked soil units in the United States as ranging from those having zero or no limiting factors to those with eight limiting factors. Soils with no limiting factors are the best soils for agriculture (in terms of least cost of production), and soils with seven or eight limiting factors were considered nearly impossible to cultivate because of the presence of a cumulative number of impediments (dry, saline conditions, shallow soils, high slope, etc.). Looking at the soils data for North America, it must be said that the United States contains a lot of good soils within its borders. About 53% of the total soil area of the United States is made up of soils with two or fewer limiting factors, and over 90% of the country is composed of soils with four or fewer limiting factors. While some limiting factors are more economically significant than others, the United States is still capable of impressive agricultural production relative to the rest of the world.
This is one of the more important maps in this list because it covers the suitability of the soil for growing crops. Growing anything in soil that isn’t doesn’t do well in fostering plant life is a very difficult problem to overcome. As this map indicates, there are some very clear areas of the country that are well suited for investing in farmland, and some that clearly aren’t.
6. State Income Tax Map
Regardless of what state you own buy land in, one important consideration to think about is what you’ll have to pay state income taxes. This map of the U.S. from TaxFoundation.org lays out what the state income tax rate is in every state as of 2018.As you can see, some states will take a much larger portion of your annual revenue than others, so wherever you decide to invest, you’ll want to understand the repercussions of what this is going to cost you.
7. American Farmland Trust Maps
The American Farmland Trust has an extensive report called Farms Under Threat that details the extent of farmland loss within the U.S. As part of this report, there are several maps that can shed light on which areas of the country have the most farming activity, and how this landscape has changed over the past few decades.
For example, this map shows which areas of the country have seen the greatest development in the highly productive agricultural areas (i.e. – these are the urban areas that have expanded outward to consume and repurpose productive farmland):
This next map shows which areas of the country are broken up into cropland, pastureland, rangeland, forestland, and woodland (among other things). Depending on which type of farmland you’re looking for (e.g. – growing crops, livestock grazing, harvesting timber, etc.), this map can point you to the areas where those types are most prevalent.
This next map shows the combined productivity, versatility, and resiliency of agricultural land, based on the “quality of the soils, the farming infrastructure that exists, and climatic conditions, such as the length of the growing season”. (Source)
This next map shows a 2012 snapshot of farmland throughout the U.S. that was best suited for intensive food and crop production. As is explained in the original report, food and crop production include:
“Fruit and nut trees, vegetables, staple foods, grains, and animal feed with the fewest environmental limitations. This land represented about 36 percent of U.S. agricultural land, or only 16.7 percent of the total land area in the continental United States in 2012.”
Keep in mind, these maps are just the tip of the iceberg. To see a lot more maps and other supplemental information, be sure to check out the full report on the American Farmland Trust website.
Putting It All Together
At the end of the day, I think you’ll see the same thing I did.
There are some markets where the land is ideal for farming, but from an ROI perspective, that doesn’t necessarily make it the best place to invest your money.
For example, farmland in Iowa has great soil and climate conditions, but it’s also a state with a fairly high-income tax rate and a very competitive market with some of the most expensive farmland in the world.
Similarly, Texas may have areas with high-quality soil, a healthy-and-growing population, and no state income taxes to speak of, but the state also suffers from drought, which can take a heavy toll on yield rates and ultimately, earn less revenue per acre for the landowner.
Deciding where to invest is never quite as simple as drawing one obvious conclusion from the data. Ultimately, you need to evaluate the specifics of the deal you’re looking at and assessing the risks that come with the package.