John C. Malone, a billionaire who made his fortune in telecommunications, is the largest private land owner in the US; his 2.2 million acres is double the size of Rhode Island.
Malone is not the only member of the super-rich who owns huge tracts of land. Ted Turner owns two million acres in New Mexico, South Dakota, Nebraska, and Georgia. LA Rams owner Stan Kroenke owns almost 1.4 million acres. The founding partner of Subway restaurants has 1.2 million acres. And Bill Gates has huge amounts of land and continues to buy more; his holdings are the equivalent of New York City, and his purchases have been almost entirely highly-rated farm land. Not to be outdone, Jeff Bezos owns almost twice as much as Gates.
And they have plenty of company. In fact, the top 25 landowners in America have a total of 23.5 million acres - nearly the equivalent of all of Vermont, New Hampshire, New Jersey, Connecticut, Delaware, and Rhode Island combined. Despite Gates’s vast properties, he does not rank in the list of the top 25 land holders in the US.
So why have the ultra-wealthy bought so much farm and other land? Will they continue to buy at their current pace? What do they really want? These are complicated questions, but there is one simple answer: profit.
It’s Always There
Purchasing land is not a new trend. There have always been people who bought large swaths, in part because it’s a good store of value, but also because it has proven to be a good investment; moreover, there’s only a fixed amount and only part of that is inhabitable and can be used for farming.
Every year, more land is required to feed growing populations. An enormous amount of land is also needed for related businesses such as timber, mining, and grazing. Ted Turner’s land, for example, is used as grazing for his herd of over 50,000 buffalo, which is believed to be the largest private buffalo herd in the world.
Forests, ranch land, and farms often have an additional asset that is very valuable: water.
And the value of land often appreciates even by just holding on to it. By comparison, major currencies can and do collapse, stocks plunge, and precious metals fall out of favor. Land, on the other hand, has been a stable investment in recent decades, and it’s always there.
Not Dirt Cheap
High quality farmland is priced at around $4,150/acre (this number varies by region and other criteria). But a decade ago the cost was around $2,000, so the return has outperformed those on many (if not most) stocks, bonds, savings accounts, and precious metals.
By installing water pumping, solar panels, and/or wind turbines, the owner can profit from additional sources of revenue. On a related note, there may be tax and other benefits that come along with owning land.
The allure of owning land in America has not gone unnoticed by investors abroad. An estimated 30 million acres of farmland are owned by foreigners, which is approximately 2% of the total - not an alarmingly high number, but also one that’s not insignificant. China owns 191,000 of those acres.
Patriotism vs. Profits
Small family farms traditionally make decisions based on factors like the projected demand, and the costs and availability of crucial products such as fertilizers; then they decide which crops to grow, and sell them to local markets.
But corporate farms have a different culture; they don’t always have the same sense of community, and sometimes not even of patriotism. Their first and primary objective is making profit, and they won’t hesitate to sell crops wherever they get the best returns - even if that means selling overseas and ignoring the needs of the consumers in their own community and country.
This can lead to strange deals. For example, in certain situations it may be easier for corporations to write off crops and take a loss on them, rather than having to comply with tariffs to sell them. In other situations, corporate-owned farms boost profits by selling their crops overseas; those foreign customers sometimes ship them back to the US where they are ultimately sold to consumers. In these deals, the crops are sold at a much higher price than if they were sold here in the first place. And there are “enterprising” individuals who sell farmland for housing or other projects; true, they make a profit, but that land is lost to farming forever.
The World Bank has predicted that the world’s agricultural production will have to increase by almost 70% in the next 30 years to keep pace with demand; this means demand for food will be increasing sharply while the total amount of farmland is decreasing - a statistic that will please bulls.
Breaking New Ground
Investors, fund managers and the ultra-rich may continue to buy land. After all, Treasury bonds, although one of the safest investments, very recently were yielding just 2.24% - not enough to keep up with inflation over the long term.
Moreover, many people believe that stocks are overvalued, inflation is rising sharply, and economies around the world are shaky; land not only has been a stable investment in recent decades but also has produced steady returns - an impressive and powerful combination. Also, every acre that is hoarded reduces supply and helps drive up the price even more.
There are approximately 911 million acres of farmland in America, according to the US Dept. of Agriculture. Over the last 50 years, farmland has appreciated by about 6.1% per year (other measures vary), with only five down years during this period. “Add in the cash rent yields, and the return to investors has been even more impressive,” reports millionacres.com. Non-farming investors own only a small percentage of this land, but farmland is increasingly becoming part of investors’ portfolios.
There are important differences between purchasing stocks, and farm and other land. For one, investing in farming may require a substantial amount of money up front, since an investor may have to purchase a large plot of land. Also, unlike stocks, there may be real estate, insurance, maintenance and other fees associated with real estate ownership.
The most obvious way to invest in farmland is through a direct purchase and then renting it out, often but not always to the current farmer or rancher. Other options include getting a new tenant, or converting land not currently being used into cropland or pastureland. Also, there are REITs that focus on farmland, such as Farmland Partners and Gladstone Land.
Of course, there’s no guarantee that land, farmland, or any investment will continue to appreciate or will not in fact decline in value. Interested investors should speak with someone who understands land from an investment perspective and is also knowledgeable about the legal issues involved in such purchases. With so much uncertainty and volatility in the markets these days, “safety first” was never more important.
Sources: agriculture.com; milllionacres.com; quora.com; thecollegeinvestor.com; usda.gov