Farmland investing 2023 review and future opportunities

The world of investing is constantly evolving, and one asset class that has gained attention in recent years is farmland. As the pandemic continues to shape our economy, many investors are revisiting farmland as a potential avenue for wealth preservation and growth. This article delves into the current state of farmland investing, analyzing its performance during turbulent times and exploring new opportunities on the horizon.

Farmland investing is not merely a trend; it represents a strategic move towards securing real assets that can withstand economic fluctuations. With food prices remaining stubbornly high, the allure of farmland as a stable investment becomes increasingly compelling. Let’s explore the landscape of farmland investing and understand why it may be a wise choice for investors today.

The current economic landscape

As we emerge from the grip of COVID-19, the economic landscape has been irrevocably altered. The pandemic has left behind a series of challenges that will influence financial markets for years to come. While the immediate health crisis may be receding, the repercussions on the economy are profound.

According to estimates, approximately 9.4 million small businesses faced temporary or permanent closures during the pandemic, highlighting the fragility of many sectors. Additionally, around 68.9 million Americans experienced job disruptions in 2021, reflecting widespread instability in the labor market.

Compounding these challenges, supply chain disruptions have emerged as a critical issue. In 2021, around 75% of companies reported significant supply chain issues, leading to inflationary pressures that have not been felt since the early 1980s. The Consumer Price Index saw a 12-month change of 8.5% in March 2022, marking the highest inflation rate in decades.

• High inflation rates have prompted a reduction in consumer spending.
• The Federal Reserve's response has been to increase interest rates, with expectations of multiple hikes in the near future.
• The ongoing war in Ukraine has further exacerbated food prices and energy costs.

Farmland’s resilience in uncertain times

Despite the economic turmoil, farmland has demonstrated remarkable resilience. Between 2020 and 2021, net farm income surged by an impressive 25.1%, according to the United States Department of Agriculture. This upward trend is projected to continue, with expectations of net cash farm income reaching its highest levels since 2013 in 2022.

Land values have also held steady during this period. From August 2020 to August 2021, average farm values increased by 7%, while commercial real estate faced a 6% decline. This contrast underscores the strength of farmland as an investment option.

Adjusted for inflation, the total cash receipts in 2021 reached the highest levels since 2014, with projections indicating a rise to approximately $461 billion across all commodities in 2022.

Understanding what drives farmland's success

Farmland's reputation as a stable asset is well-founded, offering diversification and a hedge against inflation during times of crisis. The correlation between farmland investments and traditional equities is notably low, with farmland's historical correlation at -0.6. This characteristic allows investors to hedge against broader market fluctuations.

The impact of COVID-19 and geopolitical tensions

The dual challenges of the pandemic and geopolitical tensions have created uncertainty across financial markets. In times of crisis, investors often look for safe havens, and farmland has emerged as a sound choice. Rising interest rates, aimed at combating inflation, have rendered traditional bonds increasingly risky, further emphasizing farmland's appeal.

Farmland as an inflation hedge

Farmland has historically shown a strong correlation with inflation, typically around 70% with the Consumer Price Index (CPI). As inflation rates soar, investments that align with inflation, such as farmland and commodities, attract greater attention from investors.

• Real assets like farmland tend to offer higher return potential compared to intangible assets.
• Historical data indicates lower volatility and higher Sharpe ratios for real assets.

The growing scarcity of farmland

Recent global events have heightened the scarcity value of farmland. Urbanization, desertification, and climate change have resulted in a loss of 1.3 million acres of farmland in the U.S. in 2021 alone. With projections indicating that 250 million acres could be lost by 2050 due to climate factors, the demand for arable land is set to increase dramatically.

As populations grow and dietary preferences evolve towards healthier options, the need for food production will intensify. By 2050, farmers may need to increase food production by 60% to meet global demand.

Exploring investment opportunities in farmland

As we survey the investment landscape, 2022 has proven challenging for stock markets, particularly for high-valuation growth stocks. In contrast, farmland investment platforms like FarmTogether have seen heightened interest.

FarmTogether is leading the charge in democratizing access to institutional-quality farmland. Their offerings include:

• Crowdfunded farmland investments
• 1031 exchange opportunities
• Bespoke sole ownership options
• The newly launched Sustainable Farmland Fund

With a commitment to sustainability and environmental responsibility, FarmTogether has made significant strides in ensuring that their entire portfolio is certified through Leading Harvest’s Farmland Management Standard, focusing on sustainable agricultural practices.

For those considering farmland investment, FarmTogether offers a wealth of resources and opportunities. To explore their offerings and determine if farmland aligns with your investment strategy, visit FarmTogether.com.

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