Climate change is coming. It’s not just that I believe our world will be fundamentally realigned because of human-caused climate change. Businesses and investors are betting on climate change.
A while back I wrote about a book—Windfall: The Booming Business of Global Warming—where the global mad dash to acquire the rights to fertile land to grow food in a changed climate was on in the developing world. Guess what? That same trend is occurring in the developed world as well.
Let’s look at the state of Iowa. Every year Iowa State University’s Extension and Outreach conducts a farmland value survey. It is a treasure trove of data. Here is what the results look like through 2013:
The chart above shows the weighted average price for an acre of land across the state of Iowa. It’s a fairly stunning graph.
There are several factors at play in determining the market value of a parcel of land. One such factor in the U.S. is that historically low interest rates and equity market volatility have directed investors into tangible asset classes like land and gold.
It’s my belief, however, that investors are also counting on an ever increasing value of land in a hotter, drier world where soil fertility will be of immense value. Why? Using the University of Illinois’ farmdoc database I was able to compare land values against the prices of commodities from 1960 onward:
To compare the vastly different scales in price I made 1960 a base 100 year and calculated percentage change from the baseline for each of the items (Iowa Acre of Land, Corn, Soybeans, Wheat). Plotting those data points shows a remarkable amount of correlation prior to 1990, minus the boom and bust associated with the farm crisis of the mid-1980s.
Just a quick mid-week thought exercise about the world around us.