Investors worldwide have faced many challenges over the past few years.
First, the pandemic changed the way many of us live and work. Then, asset values around the globe took off, with everything from real estate to fine art seeing large increases in value. Around the same time, cryptocurrency and NFT markets went mainstream, with some tokens reaching astronomical valuations only to tumble just as fast as they rose. Finally, inflation reached highs not seen in decades, and an ever-present threat of recession has plagued the global economy over the past year and a half.
To overcome these challenges, investors searching for less volatile ways to generate long-term returns often turn to physical assets like farmland, real estate, and other tangible holdings.
Your FREE Agriculture Investment Guide
Your guide to discovering why agriculture is such an in-demand asset class, what megatrends are driving growth in 2022 and beyond, how to invest in agriculture and assess risk, what crops are global demand leaders, and where the most compelling farmland opportunities are located.
Because farmland enjoys limited correlation to the stock market, NFTs, and cryptocurrency, it might be one of the most attractive alternatives for reliable returns. Further, as an increasing global population drives a robust need for arable land and agricultural products, investing in farmland could help generate earnings for whatever economic conditions may come during the rest of 2023 and beyond.
Ten powerful reasons to consider adding farmland to your portfolio in 2023
- Farmland provides two levers for delivering results to investors. Consistent passive income from the sale of crops and significant long-term appreciation of the land itself make agriculture a unique asset class.
- Increasingly scarce arable land combined with an expanding global population have historically helped agricultural land ownership outperform most other asset classes. The combination of growing market demand and limited space for cultivation keep demand for acreage high. Gold, bonds, and commercial real estate often can’t match farmland’s average annual return of 11% over the last 20 years.
- Agriculture is a powerful diversification tool, and as part of a “buy and hold” strategy, farmland investors can consistently see healthy returns. Its low correlation to publicly traded markets allows it to withstand traditional cyclical economic fluctuations, helping investors build wealth in today’s volatile environment.
- Because of its physical component, farmland offers significantly less risk than other alternative investment types. The underlying tangible value of hard assets reduces the significance of overall market and economic sentiments when determining the value of an agriculture investment. In other words, it’s nearly impossible for the value to go to zero overnight.
- As an inflation-resistant asset class, farmland provides consistent returns even when inflation rises. Traditional assets like stocks, mutual funds, ETFs (exchange-traded funds), and even farm REITs (real estate investment trusts) have all historically suffered during bear markets.
- Agriculture assets are depreciation-resistant. Much of the asset’s value is fertile land and the crops it produces, as opposed to buildings, which decay and depreciate over time.
- Investors buying agricultural assets benefit from the laws of supply and demand. Not only are they not making any more farmland, but the overall amount of farmland has also started to decline in much of the developed world due to climate change, an aging population of farmers, and increasing need for residential land. Peak farmland means prices are likely to remain stable or increase, making agriculture a practical choice for a diverse portfolio.
- Farmland satisfies a growing demand for food production, a crucial human resource, differentiating it from many other asset classes. In November 2022, the global population surpassed eight billion people. People will need food today, tomorrow, and every day. For this reason, farmland can often appreciate or maintain its value, even in less-than-desirable economic situations.
- Farmland is a low-volatility asset class, yet it offers significant upside, even during periods of stagnation or negative economic growth. For example, people often reduce their spending on luxury goods during a recession, including travel and going to restaurants. But regardless of the global economic environment, people still need to eat. Steady food demand helps make farmland a recession-proof and inflation-resistant asset class.
- Many of the world’s wealthiest and savviest investors – such as Warren Buffett and Bill Gates – have bought massive amounts of farmland over the past few decades. They see farmland’s potential for growth and stability for decades to come.
Where to look for farmland opportunities
Perhaps you’ve decided to add farmland to your investment portfolio. Where can you find some of the most promising opportunities? Given that the United States has likely hit peak farmland, the best domestic land is likely out of reach for the average investor.
Fortunately there are compelling opportunities available in nearby emerging markets, especially those that are positioned to benefit from the shift to agricultural nearshoring.
For example, nearshoring keeps agricultural production near the point of consumption, delivering shorter transportation routes to ensure freshness for end consumers. In addition, favorable exchange rates between the U.S. dollar and some emerging market currencies give dollar-based investors an advantage. They can acquire land at a less expensive price while keeping operating expenses low, two factors that can potentially drive a higher return on investment.
Is 2023 the year you add farmland to your portfolio?
No one can say for certain where the stock market and other asset classes are going in 2023. Whether the recession many expect materializes or not, there are many reasons to add farmland, especially in emerging markets to your investment portfolio. Its inflation- and recession-resistant properties make it an attractive tool for diversification in periods of strong growth, or as we’ve experienced lately, tumbling stock and digital currency prices.
Are you interested in learning more about how farmland can strengthen your investment portfolio? Share your contact information below, and someone from the Farmfolio team will get back to you as soon as possible.