A dynamic farmland market is expected in Uruguay during 2021. After 4 years of decreasing prices, be ready to see land values rise again. What is driving the farmland market?
- Stronger international commodity prices.
- Argentine crisis.
- Low interest rates in EU and USA.
- Exchange rate EURO- USD at 1.22
- Limited farmland for sale.
- Strong investor interest.
The increasing prices for commodities and especially soybeans leads to a higher return on investment for landowners. The speedy recovery of export markets in Asia during the 2020 pandemic adds to this optimism. Both pulp and beef are nearly back at the same volumes.
The Argentine crisis both economically and politically has led to a growing interest from Argentine investors to take their family, capital or agricultural operations to Uruguay. During 2020, there have not been too many actual investments from Argentines as borders were closed due to the COVID-19 restrictions. The expectation is that as soon as these travel limitations are lifted there will be a growing number of investments in farmland.
A decade ago, Argentines invested mainly in premium cropland in the west of Uruguay. The expectation is that this time there will also be a serious interest in cattle land in the north. Relatively low prices per hectare and stable exports of beef to Asia lead to an attractive market for cattle breeders.
The low interest rates in the US and Europe are a good motive to look at farmland investments in Uruguay. If you add the current exchange rate for US dollar and the EURO at 1.22 it means that farmland investments in Uruguay that are paid in USD are very attractive for investors from the EURO zone.
Besides these more rational arguments, there is a strong sentiment that people from both North America and Europe seek a refugee for their families and wealth. The political situation with strong polarization and adverse socio- economic tendencies lead investors to belief that it is wise to investment part of their portfolio in secure regions.
The way Uruguayan authorities handled the COVID-19 pandemic have caused an extra incentive to consider Uruguay as a safe haven. In addition to this, the Uruguayan government put in place attractive (fiscal) residency regulations to attract more direct foreign investment.
Borders closed during 2020 created a window of opportunity for domestic buyers who were mainly interested in mixed farms (cropping and cattle). Some international investors already owning assets in the country took advantage to expand their portfolio. These international investors expanded mainly in forestry assets in the east of Uruguay or premium cropland in the west of the country. The expectation is that this will continue in 2021.
Because of its stability and consistent returns, farmland got on the radar of all types of investors. There were many smaller investments in premium cropland in Colonia and Soriano for 1 M USD where prices per hectare range between 8.000 and 9.000 USD.
All this leads to a situation with definitely more demand than supply. The challenge is to find good assets at market prices. You have an environment where you have low interest rates, good farm profitability, strong farmer and investor interest and limited supply what will lead to a dynamic market in 2021.