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Farmland
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?'.
Summary
- 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.
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Sources
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.
This material is provided for informational or educational purposes only and does not constitute a solicitation of any securities in any jurisdiction in which such solicitation is unlawful or to any person to whom it is unlawful. Moreover, it neither constitutes an offer to enter into an investment agreement with the recipient of this document nor an invitation to respond to it by making an offer to enter into an investment agreement.
This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her advisors. The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on factors such as market conditions or legal and regulatory developments. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions made in preparing this material could have a material impact on the information presented herein. Past performance is no guarantee of future results. Investing involves risk; principal loss is possible. This information does not constitute investment research as defined under MiFID. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
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.
Nuveen provides investment advisory solutions through its investment specialists.
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.
This material is provided for informational or educational purposes only and does not constitute a solicitation of any securities in any jurisdiction in which such solicitation is unlawful or to any person to whom it is unlawful. Moreover, it neither constitutes an offer to enter into an investment agreement with the recipient of this document nor an invitation to respond to it by making an offer to enter into an investment agreement.
This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her advisors. The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on factors such as market conditions or legal and regulatory developments. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions made in preparing this material could have a material impact on the information presented herein. Past performance is no guarantee of future results. Investing involves risk; principal loss is possible. This information does not constitute investment research as defined under MiFID. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
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.
Nuveen provides investment advisory solutions through its investment specialists.
