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Is Farmland Investment the Key to Turbulent Market?

June 14, 2023

The current economic condition of high inflation, geopolitical tensions, and uncertainty has led investors to consider farmland as an overlooked asset class.

Farmland has historically strong returns with less volatility, historically low correlation to other assets, and tends to perform well in high-inflation environments. This makes it a good addition to a diversified portfolio.

The current value of US farmland is close to $3 trillion. In 2022, cropland values increased by 12.4% nationwide, reaching more than $5,000 an acre, the highest on record since 1970. This increase may be due to the fact that the products produced on farmland are things people can’t live without. Further, the amount of agriculture needed for food, feed, fuel and industrial inputs is predicted to increase by 1.2% every year over the next decade.

Farmland volatility has been around 6% over the last three decades, which is lower than real estate, the S&P 500, and some publicly traded indexes. Returns for farmland investments have been around 10.5% in the last 30 years, making it a great capital preservation tool.

Investors have three models of farmland investing to choose from: a pure rental model, a long-term rental agreement and profit share model, and a direct-operated model. Each offers different levels of risk and reward, with the direct-operated model being the riskiest and potentially offering the highest returns.

Farmland investing is still in its “first inning” and is expected to be added to more investment lists in the future.

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