The latest Farm and Land in Farms report from the United States Department of Agriculture (USDA) shows the US lost 1.3 million acres of farmland in 2021. The total land in farms decreased from 896,600,000 acres in 2020 to 895,300,000 acres in 2021.
Farmland acreage has decreased by over 13.62 million acres since 2014, an average loss of over 1.9 million acres per year.
Why Farmland is Shrinking: Agricultural land being converted into new developments is one of the primary causes of the shrinking supply. Developers have been purchasing farmland to expand suburbs and meet the growing housing demand.
The Farms Under Threat: The State of the States report from American Farmland Trust estimates an average of 2,000 acres of farmland are converted each day.
Farms producing low yields are often retired into the USDA’s Conservation Reserve Program. Farmers enrolled in this program agree to remove environmentally sensitive land from agricultural production for 10 to15 years in exchange for a yearly rental payment.
Why it Matters: The global food demand is increasing due to the growing population and rising incomes in developing countries. The United Nations estimates that crop production will have to increase by 60% by the year 2050 to feed the estimated 9.3 billion people living on the planet at that time.
Recent jumps in commodities prices are mainly an overreaction to the Russia-Ukraine conflict. The increasing food demand coupled with the shrinking supply of agricultural land will likely mean the costs of agricultural commodities will remain high well into the future.
An Overlooked Investment Option: While ETFs like Teucrium Wheat Fund ETV WEAT have been getting the attention from retail investors, few realize the potential returns from investing directly into farmland.
Farmland values increased by 10% to 22% throughout many areas of the country in 2021 and higher crop prices could keep pushing farmland values higher.
Real estate investment trusts (REITs) that specialize in farmland, like Gladstone Land Corporation LAND and Farmland Partners Inc FPI, are attracting a lot more attention from investors already.
However, these publicly traded REITs are still vulnerable to stock market volatility and may underperform in a bear market. Another option for accredited investors is a platform like FarmTogether or AcreTrader, which allows individuals to invest directly in farmland assets through the private market.
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