I want to jump on one of my biggest soap boxes – investing in agricultural based land. To give you a little background on who I am and why I feel this way, I was raised in a small farming community down on the Gulf Coast in Texas. Families farm a lot of rice, cotton, and corn there, just to name a few commodities, and also raise a lot of good hearty cattle. I graduated with an Ag degree from Texas A&M University and I am the fourth generation in my family to farm and raise cattle. I am also a licensed Real Estate Broker in the state of Texas.
Typically when we talk about investments in real estate, I think most people’s minds immediately jump to flipping properties or owning rentals or commercial property. Of course they’re all great tried and true options. But if you’re up for it, I want to challenge you to think outside the box and consider a different option of investment – agricultural land. Yep, you heard me right, I’m talking farm land, ranch land for livestock, etc. But no before you panic and say “but I don’t know how to drive a tractor!” I’m not implying you grab a pair of overalls and some boots and get to work, I mean own the property as an investor and rent it back out to an established farmer or rancher. In most cases, it’s as simple as, if not easier, than renting a house to a tenant. You rent the property to someone else to utilize for farming or ranching and in turn get paid for the use. Plus, what more worthy cause can you think of beyond doing your part to contribute to feeding, clothing, and fueling our nation?
Here’s my list to back up my soap box stance:
1. “Buy land. They aren’t making it anymore.” – Mark Twain
We are losing 175 acres per hour of agricultural land is lost to development. That is 3 acres per minute. Just 17% of American land is ideal for farming. We don’t have that much to lose to begin with! The U.S. lost 11 million acres of America’s best agricultural land – land with superior soil conditions and weather for growing food – from 1992 to 2012. 10% of the world’s arable acres lie within the United States. Talk about investing in an increasingly scarce resource. And it cannot be replaced. – The American Farmland Trust, Farms Under Threat Report
We are losing a staggering amount of farmland. According to the American Farmland Trust, data from the 2017 Census of Agriculture showed that 34 states saw a reduction in land used in farming, with Texas being one of the top states experiencing that loss.
In 1935 the number of farms peaked at about 7 million. Today, there are about 2 million farms in operation. Pretty sharp decline in comparison. Yet even with less farm land, farmers and ranchers continue to utilize technology and data to become more and more efficient in what they’re able to produce in both terms of quantity and quality. But – they still have to HAVE the land to do it on, which we are losing rapidly. It probably comes as no surprise that the expansion of cities and suburbs are responsible for most of the loss in farmland. But 41% of the lost acres actually came from development in rural areas.
2. Agriculture is vital to our economy.
Agriculture contributes $992 billion to the American economy each year. Agricultural exports from the United States were valued at 135.5 billion U.S. dollars in 2019 and are expected to increase through 2020. Global food security is national security. We have to continue producing and we have to have land to do it on.
In my opinion, agriculture in the US is grossly under appreciated in terms of its overall contributions to our economy. According to the USDA, “agriculture, food, and related industries contributed $1.109 trillion to the U.S. gross domestic product (GDP) in 2019, a 5.2-percent share. The output of America’s farms contributed $136.1 billion of this sum—about 0.6 percent of GDP. The overall contribution of agriculture to GDP is actually larger than 0.6 percent because sectors related to agriculture rely on agricultural inputs in order to contribute added value to the economy. Sectors related to agriculture include: food and beverage manufacturing; food and beverage stores; food services and eating and drinking places; textiles, apparel, and leather products; and forestry and fishing.”
3. The value of agricultural land in Texas is increasing.
Better to invest in something that is increasing in value versus decreasing, right? According to the USDA’s 2020 Land Values Report, the average value of Texas agricultural land, including buildings, is up 2.4%. The average cash rent price for crop land is up 1%.
According to Gary Joiner, Director of Communications with Texas Farm Bureau,
“Economists with the American Farm Bureau Federation say the stability in agricultural land values and cash rents occurs amid continued pressure on farm income and commodity prices. Many had expected to see some downward pressure on those values. But that’s not been the case. Low interest rates continue to make agricultural land an attractive investment. In addition to low interest rates and a low turnover of agricultural land, individuals, large-scale investors, estates, trusts and other institutional owners continue to invest in farmland. Other factors likely bolstering land values and cash rents are Market Facilitation Program payments, designed to help farmers recover from retaliatory tariffs, and ad hoc disaster aid to help producers impacted by wildfires, hurricanes and flooding in recent years. Farmers receiving this aid are more likely to hold onto cash rental agreements.”
4. Agriculture is viewed favorably.
For the first time in Gallup’s 20 years of tracking Americans’ views of various business and industry sectors, farming and agriculture is the clear leader.
The interest in agriculture is there and is increasing. In addition to all the existing family farms, there is an increase in new farmers and ranchers getting into the agricultural industry. In the 2017 Census of Agriculture, Beginners are on the rise: The 908,274 new and beginning producers based on 10 year or less of experience on any farm who now account for 26.7 percent of all producers and the 472,360 new and beginning primary producers based on 10 years or less of experience on any farm represent 23.1 percent of all primary producers. It’s hard to make direct comparisons to 2012 because NASS used different experience ranges and sometimes only counted experience on the operator’s present farm (versus any farm). But another current measure of new and beginning producers based on less than 10 years of experience on their present farm counted 510,536 new and beginning producers among primary producers, up a healthy 9 percent from a comparable number in 2012.
And if you are not as familiar with agriculture and are unsure about the industry as a whole, there is so much great information out there about what really happens on farms and ranchers across the country. Here’s one of my favorite “dirty truths list” from Texas Farm Bureau:
"Farmers and ranchers eat what they grow. Farmers and ranchers are gardeners. Just on a larger scale. And, like any gardener, they eat what they grow and feed it to their families. That shows their confidence in the safety of their food. Meat is antibiotic-free. Sometimes animals get sick. It happens. But farmers and ranchers step in to help by administering antibiotics to fight the infection. Don’t worry, though. Those antibiotics don’t make their way to your table. Antibiotics are tested and labeled with timelines that prevent treated animals from entering the food chain until the product has cleared their system. Farmers have choices when it comes to the seeds they plant. Lots of them. They aren’t forced to buy from Monsanto or any other seed company. They get to pick. And pick they do from conventional, hybrids and genetically modified and more. Not to mention buying from a regional seed company or any other big-named, or small, company. It’s their choice. It’s not one-size-fits-all. There are different crops and livestock. Different people. Various farming and ranching practices—conventional, organic, grain-finished or grass-finished. And a multitude of others. Each a little different than the last. Because agriculture isn’t black and white. It’s several shades of gray. Agriculture is a family business. Big or small, 98 percent of all U.S. farms are family farms, facing similar challenges we all share. And they all have the same values. Making farmers and ranchers a bigger family with each other, all growing food for you and me."
5. You have a wide variety of options to choose from.
You have a massive amount of variety across Texas in terms of what you might want to choose to invest in. According to Alison Lund, program coordinator for Texas A&M’s Natural Resources Institute, “The state’s working lands are used for crops, timber, wildlife management, orchards, livestock and more,” Lund said. “You can now see the variety of agricultural industries statewide and that some areas have two or three of them and that these industries complement one another as opposed to competing with one another.” Check out the maps here. The map data was collected, in part, using data from agricultural tax valuation appraisals, said NRI Geospatial Specialist Garrett Powers. He noted the resulting visuals show the influence of each region’s natural resources on agriculture, such as increased timber production in East Texas and a higher density of cropland in the northern and central parts of the state. “These examples show how working lands are generating money and how the agricultural industry focus changes over the space of Texas,” Powers said.
6. Instead of farm land, you can also invest in grazing land.
Not all land is necessarily suitable for farming. There’s roughly 800 million acres of land that are not suitable for growing crops because of various factors like lack of rain, certain soil conditions, or the type of environment. But that same property has native grass that cattle and other animals can graze and in turn upcycle into protein for human consumption. And don’t worry, cattle only account for 2% of all greenhouse gas emissions. In fact, grazing actually helps to REDUCE the land’s natural emissions of nitrous oxide which is a greenhouse gas that environmentalists all agree is actually more damaging than carbon dioxide. Plus, grazing helps to reduce the risk and severity of wildfires by obviously reducing the fuel for the fires. Read more about the benefits here in this Texas Farm Bureau article.
7. It’s a unique way to support family owned businesses.
According to the USDA’s report America’s Diverse Family Farms, 2018 Edition, 89% of farms are small, and these farms accounted for 52% of the land operated by farms in 2017. Family farms of various types together accounted for 98% of farms and 87% of production in 2017. It’s highly likely if you opted to invest in a piece of farm or ranch land for sale, you could rent it to a family operation and they’d be extremely grateful for the opportunity.
You can find some various cash rate estimates for Texas here and here, but keep in mind these numbers can vary and are negotiable.
So why do I bring all this up? Because I genuinely believe that the same way people consider rental houses as a source of investment income, we should be looking at agricultural land in the same way. Wouldn’t you like to be able to say that through your investment, you’re contributing to feeding, clothing, and fueling the world?