Farmland investment

A fellow farmer and former co-worker passed on this Colvin & Co. report analyzing what investors should consider when purchasing farmland as an investment. As the report states:

We believe that Midwestern U.S. farmland provides investors the best opportunity and risk to reward. Farmland may be acquired at a cheaper price in other regions of the world, but these opportunities may not have the same soil quality, transportation infrastructure, or government that supports property rights.

Only 7% of the Earth's land surface is suitable for cultivation, the remainder is either too hot, too cold, too salty, too steep, or too stony. Roughly 50% of the contiguous United States is suitable for cultivation according to Richard E. Lyng, former Secretary of Agriculture.

To understand why U.S. farmland is the best investment, you must analyze these following factors:

·                  Soil Content

·                  Growing Season

·                  Infrastructure

·                  Property Rights

·                  Government Support

In other words, land may be very expensive in the US, but the Midwest corn belt has awesome soil and temperate weather, rail and barge transportation, good highways and elevators, the government won't steal your land, and they subsidize agriculture.  I really liked this map and write-up.

There are twelve types of soil taxonomy in the world. Of the twelve, the most naturally fertile soils are mollisols, according to Robert McLeese, soil scientist for the Natural Resource Conservation Service (NRCS). Mollisols are predominantly found in only four places on Earth: in the U.S., the Pampas region of Argentina, the steppes of Ukraine and Russia, and in areas of Northeast China.

To translate, the green areas on the map are what we like to call monkey dirt, soils so fertile that monkeys could grow bumper crops on them.  People often suggest that our capitalist system and democratic government made us the most prosperous nation on earth.  They were significant factors, but having some of the richest farmland in huge areas which receive plentiful but not extreme precipitation and ideal growing conditions also played a large role in that status.

Update: This report was written in January 2010, prior to a large increase in farmland value.  I personally think that land values are outrageously high, but some people forecast food shortages which will drive up commodity, and thus land prices for the foreseeable future.  Some people also said that home prices never go down.