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Farmland enhances reputation as 'brown gold'

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Farmland appears to be enhancing its status as “brown gold”, in terms of haven assets which hold their value when prices of the likes of shares are under pressure.

 

After data from the Federal Reserve showed US prices holding firm in the April-to-June quarter, despite the Covid-19 concerns, a survey from Creighton University shows that trend continuing.

 

The university said that, for August, its farmland price index had come in at 50.1. That is 0.1 points above the 50.0 which indicates a neutral market.

 

While that may not sound much for US farmers to celebrate, that represents only the second time since November 2013, ie getting on for seven years, that the reading as stood at or above 50.0.

 

Rural economy woes

The resilience comes despite some concern over the rural economy.

 

Dr Ernie Goss, the Creighton economics guru in charge of the survey, said that “farm commodity prices are down by 10.4% over the last 12 months.

 

“As a result, and despite the initiation of $32bn in US Department of Agriculture farm support payments in 2020, only 8% of bankers reported their area economy had improved compared to July, while 18.4% said economic conditions had worsened.”

 

The Fed data showed worries over agricultural loans, with the proportion of farmers with repayment problems matching its highest since 1988.

 

Value in dirt

Indeed, Creighton’s farm equipment index, last above 50.0 exactly seven years ago, eased back 1.6 points month on month to 32.8.

 

But then buying farmland tends to be a long-term investment decision, often based for the likes of pension funds on ideas of buying a countercyclical asset, rather than the short-term economics involved in deciding whether or not to purchase a new tractor.

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