Long-Term Investment Fundamentals
Demand for Food and Energy. The world's relentless population growth, coupled with rising incomes in the fast-expanding middle classes of China and India (with nearly 40% of the world’s 7.9 billion people) and other countries, are creating fundamental long-term changes in global diets as consumers desire more protein-rich food. For example, the Chinese ate 20kg of beef per person in 1985. Today they eat more than 60kg, creating an exponential increase in grain demand because it takes 8kg of grain to produce 1 kg of beef. Increasing food needs in turn are competing with a worldwide push for renewable energy, resulting in unprecedented additional demand for agricultural commodities.
Advanced Technology. Agricultural productivity, profitability, and therefore farmland values have resulted from a variety of technological breakthroughs. Gene-splicing biotechnology makes it possible to improve crops and livestock in ways never before achievable through conventional breeding. Genetic engineering enables researchers to insert a wide variety of genes into a plant and create an improved crop in half the time or less. Plants are being engineered to emit their own pesticides, grow in dry climates and produce food that is nutritionally superior. Other ag technology utilized by top family farm operators is equally impressive: crop harvest monitors that record the precise yield from small sub-units of each field, with any variability mapped on a GPS field grid. The following year variable rate planters and fertilizer applicators apply precisely adjusted inputs for each sustainable sub-unit based on the variability map generated the previous year. Ground-level sensors, satellite imagery, and drones then measure crop performance throughout the growing season.
Impact on Farmland
The economic impact on farmland value from developments such as these will be significant in the years ahead. Global demand for agricultural output is rising, but only about 10% of the world’s land is arable and that amount is steadily decreasing. The U.S. loses approximately 1 million acres of farmland per year to non-agricultural uses, and millions more are lost worldwide. As a result, the remaining U.S. farmland is an increasingly valuable finite resource for meeting global food, fuel and fiber needs. The graph below compares Illinois farmland (comparable to productive land in other regions of the U.S.) to other major assets on a risk-adjusted basis from 1970 to 2011. In the decade since then, farmland has continued to deliver steady returns with vary low risk.