The Supply Of Farmland is Shrinking, But New Investment Opportunities Make It Possible to Buy Land As A Hedge Against Inflation

A wise man once said, "Buy land; they're not making it anymore.” 

Whether that quote can be attributed to wise man No. 1, folk humorist Will Rogers, or wise man No. 2, author and humorist Mark Twain, is a debate for another day. But more important than the quote’s origin is the truth in the statement, which has driven many investors to buy up land in recent years. 

It’s the perfect example of one of the most fundamental economic principles – the law of supply and demand. 

Land, particularly high-quality farmland, is an increasingly scarce resource. A report this year from American Farmland Trust found that from 2001 to 2016, 11 million acres of agricultural land were paved over, fragmented or converted to uses that compromise agriculture. While the supply of arable, workable land is steadily declining, what land is currently in use should steadily increase in value. 

But it's not just scarcity that is driving investors to look at farmland. They’re attracted to farmland’s historically recession- and inflationary-proof nature, too.
No matter how high inflation goes, people will not stop buying food. In fact, rising inflation tends to result in higher farm incomes, which, in turn, can lead to higher land values. 

Between 1971 and 2008, farmland values rose whenever the economy started trending toward inflation or a recession, according to the National Council of Real Estate Investment Fiduciaries. For instance, during periods when inflation rose by 3%, farmland prices rose by an average of 8.3%. When inflation rose 6%, farmland prices rose by 15.7%. More recently, the USDA’s Land Values 2022 Summary shows that U.S. cropland values rose an average of 14.3% from 2021 to 2022.

Meanwhile, residential real estate and office space — including office real estate investment trusts (REITs) that were clobbered during the pandemic — are suffering in the current economy, prompting investors to look at farmland as a hedge against inflation and recession. 

Driven by the increasing scarcity of farmland and an ever-growing demand for food, farmland has historically proven to be a reliable store of value in nearly any economic environment.

Finding someone who knows what they’re doing to farm the land is the hard part. So investors who want to own land but don’t want to be actual farmers are looking at buying into farmland REITs or other, more direct investment vehicles with multiple funding and management arms. 

One of those vehicles is FarmTogether, a farmland investment manager that enables accredited investors to invest in U.S. farmland. The company allows its investors to add farmland to their portfolios through crowdfunded or fractional farmland shares, sole ownership or by taking advantage of its sustainable farmland fund. In its three-year history, FarmTogether has funded more than $160 million in assets under management.

The company focuses on target opportunities yielding between 6% and 13% returns with 2% to 9% cash yields. FarmTogether specializes in row and permanent crops, with over 40 properties across the U.S. 

For more information on FarmTogether, visit www.farmtogether.com. 

Image by Pexels from Pixabay

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