Institutional Investments in Farmland: a Source of External Equity for the Farm Sector

The feasibility of institutional and/or individual investments in farmland was determined by using the Capital Asset Pricing Model to compare the expected return from farmland, based on historical trends, to the required rate of return for investors with a diversified portfolio. The risk-return characteristics of farmland appear to be favorable for investors with a diversified portfolio but the unique characteristics of farmland violate the Capital Asset Pricing Model's assumptions and prevent a definite conclusion. Multiperiod linear progamming models show that increased availability of rental land resulting from increased farmland ownership by non-farmers could significantly increase farmers' earnings and farm firm growth.Agricultural Economic