Rising inflation rates have been a major talking point recently in both the political and financial worlds throughout 2022. Inflation, of course, is a concern to consumers, but it’s also a concern for investors, making this the perfect time to explore a classic inflation hedge - investing in farmland.

With farmland, investors have access to a real asset that is involved in actual production and with an ever-growing population, the world will only need more food every year. There are a lot of farms changing hands with more to come as legacy farmers age out without anyone to pass their land to -- it is projected that 70% of all farmland will change hands in the next twenty years. This creates more opportunity to get exposure to this asset class.

While climate change is obviously a global concern for many reasons, investing in farmland actually acts as a hedge in a way against that - as counterintuitive as that may be. Because rising temperatures, more adverse weather events and the increased number of natural disasters all conspire to reduce the amount of land suitable for farming, the land that remains suitable for farming will increase in value. As long as the farm itself is located in the right area, the growing scarcity of arable land in the future, while not great for the world, will be good for those who own viable farmland. Even if (hopefully) climate change does not prove as bad as current forecasts, urban and industrial development causes 2,000 acres of farmland to disappear every day in the U.S.

There are also a couple of soft factors that make investing farmland attractive. While the majority of the population in the U.S. now lives in urban areas, there has been an explosion of interest in farm-to-table restaurants and community-supported agriculture (CSA). There is also a great interest in organic farming and sustainable practices. The idea of owning part of a sustainable or organic farm can be very attractive to those who want to affect change with their pocketbook.

There is a reason that Bill Gates is buying up farmland - he’s now the largest private farmland owner in the country.

Historical Performance

Since 1990, farmland has not seen a single down year, averaging annual returns of around 11%, trailing only the performance of REITs in that time:

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Source: AcreTrader

Since 1992, the standard deviation of returns, a measure of volatility, has been lower for farmland than any asset class other than bonds, the classic low-risk low-return investment vehicle. Additionally, the Sharpe Ratio - a measure of return on investment versus risk - of farmland is higher than any other asset class in that time.

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Source: FarmTogether

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