• Strong demand for land, low interest rates and low income tax rates can be beneficial for buyers and sellers of agricultural land.
A number of factors have come together to provide unique circumstances that can be beneficial for both buyers and sellers of agricultural land.
Strong demand for land, interest rates at almost all time lows and long-term federal capital gains tax rates not seen since 1933 are all involved.
Let’s take a look at these factors.
Demand: Interest in farmland is rising globally. Population growth, rising incomes and migration from rural areas to urban locations is driving demand for food products, oilseed and livestock.
The world’s population is growing 1.2 percent annually, firing the increased demand for protein at a 2.5 percent annual rate.
Arable land is declining in China, India and the U.S. The world historically held large reserves of food and fiber in storage, but those reserves have been liquidated due to large scale floods, droughts, or other weather events that have occurred.
China used to carry a year’s corn crop in reserve, but it is down to 20 percent of last year’s crop. At one time India carried almost a year’s reserve of wheat, but it is down to 35 percent. China and the U.S. historically carried 50 percent of a year’s cotton crop, but that is almost all gone.
Institutional investors (pension funds, private equity groups) see farmland as a diversification to their portfolio, an inflation hedge, a safe haven and a source of stable returns.