IN THE PAGES OF REAL ESTATE ISSUES, WE HAVE EXPLORED many aspects of land use and development including entitlement, valuation, zoning, environmental remediation, urban renewal and urban sprawl. We have examined wide-ranging physical improvements including office, industrial, hospitality, housing, and public sector developments. As described by the Urban Land Institute byline, "Under all is the land," indeed, as Counselors of Real Estate, land is fundamental to the work we undertake on behalf of our clients. This article looks at land in perhaps its most basic and fundamental purpose--that of agriculture. The authors summarize why this market segment has become an important asset class for investors and what are the historical and future valuation and demand trends. We reference and extracted from a United States Department of Agriculture, Economic Research Service forecast for 2008. This thorough report provides in-depth research on the topic of agricultural commodity and agricultural land prices and trends. The full report may be obtained at www.ers.usda.gov/briefing/FarmIncome/NationalEstimates.
The Economist's food-price index is higher today than at any time since it was first established in 1845. The magazine's view is that "agflation" is supported by important longer-term trends that will continue to influence the market for at least the next seven to 10 years. And it argues that historically high commodity prices are occurring during a time of abundance. The surging economies in China and India are overpowering the normal economic consequences of strong supply. At the same time, for example, the United States, long the largest exporter of corn, now consumes more corn domestically for ethanol than it sells abroad.
Everywhere, the cost of food is rising sharply. Whether the world is in for a long period of continued increases has become one of the most urgent issues in economics. (1) Global stores of grain have fallen to their lowest levels in decades, and there are compounding factors contributing to sharply higher price levels.
Increased consumer wealth in rapidly developing countries and the attendant nature of food consumption in these rapidly expanding economies are powerful drivers of the new economic reality. In recent years, developing countries have evidenced annual economic growth rates in the range of seven percent, a strong rate by any standard. Growth rates at this level mean that hundreds of millions of people are gaining access to more than just the basic necessities and subsistence levels of nutrition. This new wealth allows for not only the ability to acquire cell phones, medicines and bottled water, but also more abundant and nutritious food.
In addition, some governments such as in Russia and Venezuela have imposed price controls in an attempt to manage this politically sensitive upward spiral in food prices. Others are implementing export restrictions. These attempts to manipulate commodity markets have led only to higher price levels as local farmers respond by curtailing production of price-constrained crops. Farmers from around the world are producing at full capacity and expanding their tillable soil with sometimes detrimental environmental consequences.
In 2007, net farm income was at record levels, and the year ended with key economic indicators at favorable levels. Exports were strong as the weak dollar made U.S. commodities more competitive in international markets, and ending-year stocks of many commodities were low. Consequently, the outlook for the farm economy as a whole is for a very good year in 2008, driven by strong demand for feed crops, oilseeds and food grains.
UNITED STATES PERSPECTIVE
Exports from the U.S. are expected to increase by 23 percent this year to a record $101 billion, resulting in further consolidation of America's status as the world's largest agricultural exporter. (2) This increase in export value is even more remarkable in that net farm income in 2007 was $87 billion, or 50 percent more than the average income over the past 10 years. …