Long before the COVID-19 crisis swept the globe, we urged our friends, family and Alliance members to invest in farmland.
Sure, when we first published our article on the top five reasons to invest in farmland back in early January 2020, we couldn’t have imagined the economic upheaval the looming global pandemic would cause.
After all, it was before China’s decision to shut down cities with millions of people. It was before WHO declared the coronavirus outbreak a pandemic. It was before our societies were brought to a standstill and our rates of unemployment soared.
What we did know, even back then, is that pandemic or not, farmland is and likely always will be a safe and reliable asset class. It was true during those rosy pre-pandemic days of (comparative) economic stability, and it’s true now that the global economy has taken a nosedive.
But hey, we’re not here to say, “We told you so” (even though we did). Now, more than ever, farmland represents a resilient asset class that can protect your portfolio from the threat of global depression.
Let’s talk about why it makes sense to invest in farmland now more than ever:
With unemployment out of control, small businesses shuttering, and once-stable corporations struggling, COVID-19 has flung markets into a flux.
Even alternative investments once considered “safe” have been affected by the global crisis—we’ve already seen how concerns of currency devaluing have driven up gold prices, and geopolitical arguments have contributed to plummeting oil prices.
Amid rising volatility, agriculture has emerged as a mighty diversifier and a resilient asset class. Farmland is negatively correlated with stocks and bonds and only somewhat correlated with commercial real estate. That means that even as these traditional assets fall in value, farmland prices tend to rise.
Case in point: Remember the 2008 financial crisis? Even as other sectors of the economy weathered the impact, the agriculture sector was relatively profitable. Farmland not only outshone the U.S. treasuries, the Dow Jones, and the S&P 50 index over the eight-year period, but it also reliably yielded lucrative returns.
Let’s talk about those lucrative returns for a moment. Even amid all this uncertainty, there is one thing we are pretty sure about: COVID-19 or no COVID-19, people will always need to eat. And as the population grows, so will the need for a greater food supply.
Estimates suggest there will be more than nine billion people living on our planet by 2050, and 90 percent of the existing arable land will need to yield as much as 70 percent more food to accommodate the rise. Considering the predicted global population surge and subsequent spike in food demand, it’s safe to assume farmland investments will continue to generate positive returns for decades.
As can be seen above, food prices have not been negatively affected during previous recessions and have been thus far supported by supply-demand forces during this one. That brings me to my next point.
With governments creating money on a massive scale to prop up economies, some experts fear it might not be long before inflation rears its ugly head. Here, again, agriculture shines as an asset class. Produce and food tend to increase in price as inflation rises, making farmland—along with multifamily real estate, we might add—one of the sturdiest hedges against inflation.
To sum this up: Negative correlation to traditional investments, reliable returns, and inflation resistance are only a handful of the reasons farmland makes a compelling investment now more than ever (that’s three). If you’re interested in learning more about farmland investments, we want to hear from you—so schedule a chat with us today.
Till the next time,
Peter & Karen