31 million acres lost
One of the fundamental reasons why we experience inflation is that central banks can print money — in the trillions.
If you are looking for a hedge against inflation, you might turn to assets that can’t be printed out of thin air like fiat money. And farmland fits that description.
The supply of farmland is limited. Only a fraction of the land on our planet is suitable for cultivation, and most of that land is already being used for the purpose.
At the same time, the supply of usable land is steadily shrinking thanks to urban development. Big money can be made when developers rezone agricultural land to commercial or residential use — so that process has been going on for decades.
In fact, research shows that between 1992 and 2012, almost 31 million acres of agricultural land were irreversibly lost to development.
Simply put, farmland is becoming a scarce resource. As a result, what land is currently in use tends to steadily increase in value.
According to data from farmland investing manager FarmTogether, the average annual rate of return on farmland from 1992 to 2021 was 10.74% — better than average returns of 8.5% for real estate or stocks during the same time period.
10 billion mouths to feed
On the demand side, there’s a very clear reason why farmland is expected to remain a hot commodity: population growth.
The demand for food is inelastic, meaning it tends to remains consistent throughout the year and economic environment. With the global population now topping 8 billion people, this demand just reached an all-time high.
Looking ahead, the world population is projected to reach nearly 10 billion in 2050.
According to the World Resources Institute, there will be a 56% food gap between crop calories produced in 2010 and the amount needed to support 10 billion people in 2050.
To feed those people, we will need even more food than is currently produced. When you combine urbanization’s impact on the supply of farmland with the rising demand for food from a growing population, it can be easy to see how existing farmland could become more valuable going forward.
A 70% correlation with CPI
But there’s more. Farmland can also be an ideal inflation hedge. After all, it produces things that tend to move in lockstep with rising inflation: agricultural commodities.
Commodity prices are commonly believed to be a leading indicator of inflation. When the cost of raw materials goes up, that eventually gets reflected in the price of final products — and consumer prices tend to go up.
For instance, both corn and soybeans saw their prices rally 18% over the last 12 months. Wheat is up around 3% year over year, while rice has gained 26%. That’s one of the reasons why the food you buy at the grocery store keeps getting more expensive.
What about the farmland itself?
According to the TIAA Center for Farmland Research at the University of Illinois, farmland has historically had a 70% correlation with the consumer price index and an almost 80% correlation with the producer price index. It’s not a perfect one-to-one correlation, but when the price of food goes up in an inflationary period, farmland has the potential to become more valuable.
Past performance is no guarantee of future results, but 2022 is turning out to be another one of farmland’s shining moments. The NCREIF Farmland Property Index has returned 6.2% year to date.
To put that in perspective, stocks, bonds and even gold are all in the red this year.
Inflation-proof your portfolio
Because of the attractive supply-demand dynamics of farmland, many institutional investors are gobbling up the asset.
According to FarmTogether, there were less than 20 farmland-focused investment funds globally in 2005. After the financial crisis of 2008-2009, however, things began to change as big money investment firms started looking for safe havens.
By 2020, the number of farmland-focused funds had ballooned to 166.
Here’s the best part: These days, you don’t need to be a fund manager to invest in farmland, and you don’t need to know how to work the farm, either.
FarmTogether’s all-in-one online platform allows you to invest in U.S. farmland by taking a stake in a farm of your choice. That way you can gain exposure to this precious asset class without spending millions setting up a farm of your own.
By investing with FarmTogether, you have the potential to earn an income from crop yields, rental payments and presumably capital gains once a property is sold.
Ultimately, not even the best stock picker can predict whether the market will go up or down tomorrow. But one thing is certain: As long as people need to eat, farmland is well-positioned to retain – and grow – its value.
Diversify your investments with farmland
You don’t have to own a farm to profit off farmland.
Farmland has proven to be one of the most stable assets of the past few decades — and with FarmTogether, you’re able to invest today. FarmTogether's platform gives accredited investors access to this exciting market, and one of the highest-yielding asset classes on a risk-return basis.
Sign up for FarmTogether to start investing in farmland.