Large investment companies are increasingly looking at Arkansas farmland as a stable investment after the recession made other options, such as stocks, a risky bet.
For nearly 40 years, Aaron White has been a farmland broker based at Wynne in Cross County. He said he sells farmland at prices 150 percent higher than 15 years ago.
"Farmland is a good, solid and tangible investment that you can walk on," he said. "We've got a real good handle on where the money is coming in on farmland, and it seems like Arkansas is one of the kings."
The value of farmland has risen an average of 4.6 percent annually since 1990, according to the National Council of Real Estate Investment Fiduciaries. Including income from the land, mostly rent, farmland in the U.S. returned about 10.4 percent to investors in 2015.
White said rising global population means the demand for food will continue to steadily increase. While prices for core Arkansas crops such as rice and wheat vary from one year to the next, farmland is expected to become more and more valuable.
"Farmers are suffering a little bit because of commodity prices, but their land value has really propped up their net worth," White said.
Farmland values in the Delta increased 5.3 percent in 2015, well above the nationwide average of 2.4 percent, according to U.S. Department of Agriculture data. Arkansas farmland value increased 7 percent, trailing only New York, Missouri, South Dakota, Oklahoma and Washington in growth.
Farmland in Arkansas is returning a higher percentage on investment than farmland in other parts of the country, White said. Arkansas land is cheap to begin with, and land in the state's northeast has a reliable source of groundwater from the Mississippi aquifer, which refills annually.
"These investors are looking at water being the answer to high yielding crops and well-developed farms," he said.
Bill Shannon, a farmland broker in Jonesboro for Farmers National Co., said pension funds are a popular option for farmland investments. Pension funds target large blocks of land, usually 1,000 acres or larger.
"It's not worth their time to go through the process to buy smaller tracts of land," he said. "The larger the tract of land, the more valuable it is."
The pension funds purchase the land, then rent it to farmers. The rent makes up the majority of the income from the land.
"It's not as volatile as stocks are," Shannon said. "With the downturn in the economy and steep drops in the stock market, people were looking for stable investments."
Randall Pope, president and chief executive of Arkansas-based Westchester Group Investment Management, a farmland institutional investor, will use Arkansas as the base to manage a $3 billion investment in farmland worldwide. Westchester Group is a subsidiary of the Teachers Insurance and Annuity Association, a global investment company that committed $3 billion last year.
The Teachers Insurance and Annuity Association manages about 43,000 acres in Arkansas, behind only California, where the association manages about 47,000 acres.
Pope said the average age of a farmer is 58, and as farmers near retirement, they are finding fewer people willing to manage their land full time.
"None of their family members want to come back and farm," Pope said. "We are going to see more consolidation in the agriculture land sector. This is a growing asset class."
He said less than 1 percent of farmland worldwide is owned by institutional investors. That percentage should grow as people who remember the recession start saving for retirement and looking for companies that offer low-risk investments.
Pope said the Teachers Insurance and Annuity Association investment will be put toward a diverse type of crops, including nuts, wine grapes, apples and citrus fruits. But about 70 percent will go toward row crops, which is one of Arkansas' strengths, growing about half of the rice planted in the U.S. and 3.3 million acres of soybeans.
"These things offer low volatility," he said. "More and more people are looking for real assets, and farmland fits really well in there."
SundayMonday Business on 06/12/2016