Why farmland now? A store of value during economic uncertainty and inflationary periods
The current financial environment highlights that now more than ever is an attractive time for investors to diversify their portfolios into safe haven assets that protect against uncertainty and inflation. Several factors make now a great time for investors to seek farmland investments, these include: farmland’s ability to act as a store of value during economic downturns and inflationary periods, low volatility and strong income producing capabilities relative to other investment classes and the adoption of technology across the agricultural chain which is anticipated to improve farmer profit.
In this research paper, we explore these characteristics in more detail and provide a compelling case for 'Why farmland now?'.
- Considered a safe haven investment, farmland has proven to be a reliable store of value through times of economic tumult including the COVID-19 pandemic — exhibiting durable valuations, attractive levels of income and low volatility while being uncorrelated to competing assets.
- Financial yields from farmland are inherently tied to food prices, which generally increase with inflation and have been supported by stable supply-demand dynamics. Thus, farmland investments can be expected to remain a strong hedge against rising inflation.
- Now is a compelling time to invest in farmland due to imminent productivity gains from the implementation of new technologies introduced in the agricultural space and the associated influence on farmland returns.
1 Kuethe T.H. et al. (2013): Farmland versus Alternative Investments before and after the 2008 Financial Crisis. Journal of the ASFMRA p.120-131
Recommend further reading:
Elworthy, F. (2018): Volatility to Explain High Historical Farmland Returns. The Property Chronicle. May 9th
Ibbotson, R.G.; Kaplan P.D. (2000): Does Asset Allocation Policy explain, 40, 90 or 100 percent of Performance. Association for Investment Management and Research. Jan/Feb 2000. p.26-33
Key, N. (2018): Productivity Increases with Farm Size in the Heartland Region. USDA-ERS
Painter, M.J. (2015): Assessing the Required Risk Premium for North American Farmland Investment. Journal of ASFMRA,
p.15-33 Sands, R. et al. (2014): Global Drivers of Agricultural Demand and Supply. USDA ERS
Sorensen, A.A.J. et al. (2018): Farms under Threat: The State of America’s Farmland. Washington D.C. American Farmland Trust
Wang S., et al. (2015): Agricultural Productivity Growth in the United States: Measurement, Trends, and Drivers, ERR-189, U.S. Department of Agriculture, Economic Research Service, July 2015.
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A word on risk
As an asset class, agricultural investments are less developed, more illiquid, and less transparent compared to traditional asset classes. Agricultural investments will be subject to risks generally associated with the ownership of real estate-related assets, including changes in economic conditions, environmental risks, the cost of and ability to obtain insurance, and risks related to leasing of properties.
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