California farmland is attracting outside investors who are pushing prices higher and banking on a low risk investment, market data shows.
"Farmland is lower risk and probably higher returning than commercial real estate, timberland, bond funds and equity funds," the Los Angeles Times quoted Charles Allison, head of Prudential Financial Inc.'s agriculture investment portfolio.
The average price of an acre of farmland in the state reached $7,200 in 2012, a $300 gain from the average price in 2011, figures from the U.S. Department of Agriculture indicate.
The climbing prices have been supported by rising commodity prices, in part due to increased demand from China, the Times reported.
That has pushed the prices for prime cropland, such as almond and pistachio orchards in Tulare County, up as high as $15,000 to $19,000 an acre, up from $13,000 to $16,000 two years ago, the California chapter of the American Society of Farm Managers and Rural Appraisers said.
Frank Plessmann of Agriworld Fund Inc., a hedge fund that has actively invested in farmland for a decade said he suddenly has company. "There was no one to speak with about it, but now there are all these agricultural investment groups," he said.
The impact of higher prices on farmers includes freeing up farm capital, paradoxically, for other investments. But farmers also worry that outside speculators could drive the price of land to unsustainable levels. A farmer's relatively modest investment in farmland could tumble if speculators push prices into a bubble that bursts.
Low risk also does not mean no risk, University of California Davis professor Dan Sumner said.
"I know of no one who projects farmland prices, other than hucksters who are trying to sell you some. They then only say farmland prices are sure to rise always and forever. But if that were true, why are they selling?" said Dan Sumner, who is the of the Agricultural Issues Center at the university.