The last 20 years have seen a new asset category grow in popularity… farmland.

And it’s easy to see why, because farmland is profitable.

In fact, the National Council of Real Estate Investment Fiduciaries’ (NCREIF) Farmland Index had an average annual return of 12% over 20 years.

That beat the NCREIF’s Commercial Property Index and the S&P 500’s return of about 9%. It also topped investment-grade corporate bonds, which had returns in the 7% range.

Institutional Money Going Country

Not surprisingly, farmland’s outperformance has caught the attention of institutional investors.

In the past two years alone, institutional investment into U.S. farmland topped $2 billion, according to iiSearches, the data arm of Institutional Investor.

And the trend seems to be continuing. In August, TIAA-CREF announced that it raised $3 billion for its second global farmland investment partnership.

Institutions, however, still own less than 1% of the $2.4 trillion U.S. farmland market. And their share of farmland ownership is sure to rise in the years ahead.

It’s the perfect investment for institutions with long-range investment goals, such as pension funds. It’s a real asset, not correlated with stocks and bonds. And it pays steady income, as farmers pay rent on the land.

The average rent for U.S. farmland over the past 16 years rose about 5% annually. It was about $141 per acre in 2014, according to the U.S. Department of Agriculture.

Farmland REITs

Farmland is a real asset tied to a megatrend – rising global food demand. The middle class is expected to grow from 1.8 billion in 2010 to 3.2 billion in 2020 and 4.9 billion in 2030, with 85% of that growth coming from Asia.

This real asset pays a steady income, making it suitable for mom and pop investors, too. And the good news for those looking to invest in farmland is that there are now three farmland real estate investment trusts, or REITs. These are equity REITs that lease the land to farmers.