Institutional investors smell opportunity in farmland. They are preparing to move aggressively into the agribusiness space. One result of this has been booming values for farmland in the US, up 74% in the ten years leading to 2008, according to Yale professor Robert Shiller. In 2010, US farmland value was $1.9 trillion, down just 5% from the 2008 peak.
This is a major development. But does it represent a fundamental change in valuation or is it another farmland bubble?
Agriculture has historically failed to attract attention because it offers high risk and low reward, the exact opposite of what modern finance considers attractive “risk adjusted returns.” The fact that major banks are paying more attention means they expect that to change and returns to improve.
What many don’t appreciate is that the risks of agricultural remain significant.