LIKE many others, Charles Gracey, a computer chip designer from California, has felt the sting of losing money in the financial markets, and he has watched with trepidation as home values have skidded. But now he has found what he thinks will be a better way to build his assets while improving his family’s quality of life.
The Westchester Group manages farm tracts worldwide, including cornfields in Illinois.
All it takes, it seems, is water, sunlight and the right kind of soil. (Sweat equity is optional and, if he wants, he can even pass along the everyday risks to someone else, too.)
Last spring, Mr. Gracey, who goes by Chip, and his wife, Kristin, paid $1.59 million for a 105-acre walnut farm — complete with a 37-year-old farmhouse — in Red Bluff, Calif., about 125 miles north of Sacramento. The farm was already in operation, so all he had to do was move the family in and hire a management company to oversee the orchards. (Mr. Gracey, meanwhile, makes a two-hour drive twice a week to his technology business in Rocklin, where he used to live, and works from home the rest of the time.)
In late October, at harvest time, Mr. Gracey says, he expects a yield of 170 tons of walnuts, sellable on the open market at around $1.05 a pound. After taxes, fees and expenses, there should be a profit of around $115,000, which would be reinvested in the orchard, he said. At the same time, the property continues to appreciate in value. “I could probably sell it for $200,000 more than what I bought it for,” he said. “That’s a lot better than most other investments.”
Indeed, farmland in general is considered an excellent diversifier: historically, the returns are negatively correlated with stocks but tend to track inflation. And these days, as many real estate sectors languish — nationwide, the median home price fell 7.6 percent in the second quarter, the National Association of Realtors reported last week — agricultural land is going strong. In an annual report released just this month, the United States Department of Agriculture said property values for farmland nationwide had risen 8.8 percent, on average, over 2007.
Of course, that means farmland is not exactly cheap for investors new to the market. The average price for an acre as of Jan. 1 was $2,350, a record, it said. The biggest jumps last year came in the Northern Plains, which includes Kansas, Nebraska, North Dakota and South Dakota. Higher prices for corn, wheat and soybeans helped push up values there by 15.5 percent, according to the report.
Industry experts say they expect no major shifts in prices, amid widespread concerns about global food shortages and a growing need for biofuels like corn ethanol and soybean biodiesel. A dwindling supply of farmland has also caused values to rise.
“Five years ago, we were buying high-quality soybean land for $3,000 to $5,000 an acre, and today it’s going for $6,000 to $7,000 an acre,” said Murray R. Wise, the chief executive and chairman of the Westchester Group, based in Champaign, Ill., a manager of nearly $600 million of global farm tracts for investors. Nevertheless, he added, “we believe that today’s prices are still an attractive investment.”
Glenn Kreuder, a corn and soybean farmer from Garden Grove, Iowa, has seen a growth in demand as well. Mr. Kreuder, who is also an investor and landlord, recently sold 70 acres in Wayne County, Iowa, for about $4,000 an acre, roughly double what he paid for it two or so years ago. At the same time, he has been able to raise rents charged to farmers.
“Rents have actually doubled in the last two to three years,” he said.
There are a few ways for average investors to try to make money in agriculture. (Forget real estate investment trusts, though: farm-focused REITs don’t exist.) They can buy the land and handle all the operations and farming themselves. Or they can hire a manager to do most of the farming chores but still be responsible for whatever profit or loss the farm produces, as Mr. Gracey, the computer chip designer, does.
(Management fees vary. In Northern California, for instance, owners typically pay $100 to $160 per farmable acre each year, in addition to paying any expenses, according to Mr. Gracey’s broker, Sam Mud of Ag-Land Investment Brokers in Red Bluff.)
Investors can also rent out their property to farmers. Besides earning income, they may well ultimately sell it at a profit after it appreciates in value, as Mr. Kreuder did. Many farmers prefer to rent — sometimes by the acre per year, sometimes for a flat fee or for a share of their crop revenue — rather than own because it frees money to invest in their farming.
“Most of the people who buy from me are nonfarmers,” Mr. Kreuder said, adding that some people may be initially reluctant to invest in farmland because they know little about agriculture. “But it’s probably one of the safest properties to rent,” he said. “If you advertised a property today for rent, you might get 30 or 40 calls — there’s always demand.”
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