Farmland as an Investment.

  I was reading my favorite magazine the other day when I came across an interesting article on how farmland is considered a great investment based on its return. 

In 1970, an acre of farmland in Iowa ran just over $400 but that same acre jumped to just over $7000 in 2016.  that is a huge increase.

(7000-400)/400 = 1650% increase per the standard mathematical increase formula.

According to the article, farmland as investment has outperformed most other assets for the last two decades offering a 12 percent return each year.  This has lead to investors bidding on proven properties for their portfolios.  So far about 30% of the available land is owned by investors and leased out to farmers.  

You may wonder how this happened.  Its simply economics because many farmers are aging, The cost they can sell crops is less than they need to be financially solvent, the interest rates have gone up, and people want their money out.  In addition, some crops such as corn are being used as an additive to fuel.  Interesting observation, as the price of land has escalated, the amount of ethanol being produced has grown at about the same rate.

Over the next 5 years, according to another article it is predicted that another 92,000,000 acres of land will come up for sale, or an amount of land that is about the size of Montana.  It is expected this land will be snatched up by investors such as retirement or pension plans, and others rather than being purchased by individuals.

In 2016, the total amount of land in the United States under crops is 253.1 million acres.  This means if 30 percent is owned by investors, then 253.1 x .30  or about 76 million acres so that would be (92 + 76)/253.1 or about 66% of the farm land owned by investors.  On the other hand, I saw a different figure which stated only 10 million more acres would be available over the next 5 years for purchase so that would be (76 + 10 )/253.1 or about 34 percent. 

Both articles agreed on the amount owned by investors but differed on how much will be available for purchase over the next five years, I looked at the percentage for both.  What I see is that this article is great for having students calculate the actual numbers of acres owned by private investors so they could take this information and create a slide show using the information.

This helps teach them more about the rate of return, economics and provides students with a real world application of mathematics.  Let me know what you think, I'd love to hear.  Have a great day.