Farmland investment opportunities

What makes a good agricultural investment?

There are several factors that determine whether or not a certain farm is a good investment.
These factors include the following

  1. The rainfall
  2. The soils
  3. The tenant
  4. The investment manager
  5. The amount of, and condition of infrastructure
  6. Location
  7. The price

The quality of the farmland investment

  • Farmland soil quality
    Farms come in all shapes and sizes. Some have good soils, some have poor soils, and everything in between. Although farmers have the ability to add certain products to soils to improve their productivity, there is no substitute for good quality soils. Australian soils are old and fragile, and not very deep. Unless soils are well looked after, the value of the property will not appreciate
  • Farmland rainfall
    The same can be said for rainfall. Australia is a dry country, and every millimetre of rain that falls is valuable to farmers. Not surprisingly, farms located in higher rainfall areas are more expensive than farms located in lower rainfall areas
  • Farmland productivity
    A productive property will create interest from multiple potential tenants. This gives the land owner options – creating competitive tension – potentially resulting in a higher lease price
  • Farmland location
    The tyranny of distance is real. Farms located further from service centres are never as attractive to tenants as farms closer to towns. Ideally farms should be 60kms or less from their closest town
  • Farmland infrastructure
    It is expensive to maintain houses and sheds on properties. They are depreciating assets. A perfect investment property will have little or no infrastructure.
  • Farmland – Cropping is king
    Cropping is king. The larger the arable area on a property, the more the tenant will be able to pay for the lease. Non–arable country does not produce a great deal of income, and is accordingly discounted.
  • Farmland – Mixed farm
    A mixed farm will give the tenant options to either produce livestock, or grow crop. This flexibility lowers risk for the tenant – therefore reducing counter party risk for the landowner

Quality of the tenant (farmer)

A high quality tenant is extremely important to manage your
investment:
The tenant will be the custodian of your asset:

  • Farmland Management
    There is a high degree of variability in the level of management
    skills amongst farmers –choosing a good one is critical:
  • Family farmer
    A family farmer with sons entering the business is generally the best target. These people are ambitious, hardworking, and are keen to expand there enterprises:
  • Farmland tenant
    The tenant should have the following attributes

    • Strong balance sheet
    • Strong agronomic understanding
    • Good work ethic
    • honesty

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