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In a macroeconomic landscape where upward price pressure exists for nearly everything consumers buy, assets with values positively correlated with inflation make strong investments. Farmland, often under the radar of traditional investors, has long been used as a hedge against the value-eroding impact of rising prices. Farmland preserves wealth during high-inflation periods for a few key reasons:
Farmland is a tangible asset with inherent worth. Its value is deeply rooted in the fundamental human need for food production. Unlike paper assets or companies with products tied to short-term trends, farmland's intrinsic worth remains consistent. In fact, there has only been one negative period for US farmland returns since 1950.
Past performance is not indicative of future results.
Farmland investments often offer a dual benefit. In addition to potential capital appreciation, they generate consistent income through the sale of crops, providing investors with stable and resilient cash flow in periods of higher inflation.
Farmland operates as a natural hedge against inflation. As consumer prices surge, so do the prices of agricultural products grown on farmland (think about the increases in food prices since 2020). This built-in inflation protection tends to drive farmland returns (and thus values) during high-inflation periods as seen in the below chart.
Past performance is not indicative of future results.
The supply of farmland is finite, and expanding it is often impractical due to factors like urbanization and environmental regulations. In contrast, the demand for agricultural products continues to rise in tandem with a growing global population. This scarcity, paired with increasing demand, translates into relatively stable farmland value improvements over time.
Contact us at Gold Leaf if you wish to learn more about the benefits of investing in farmland.
Sources: USDA, NYU Stern School of Business, Federal Reserve Bank of St. Louis, NCREIF Farmland Property Index, National Council of Real Estate Investment Fiduciaries
