Growing up in upstate New York, I spent a lot of time driving around on two-lane roads surrounded by corn and wheat fields. After seeing a lot of that farmland turn into neighborhoods and sprawling shopping centers, I became interested in learning about the preservation of this important resource. During this process, I was surprised to learn just how good of an investment farmland has been, historically speaking.
Compared to the stock market, which has constant ups and downs, farmland is a far more stable asset class with significantly less volatility. Over the last two decades, the average return for farmland has been 12.1% annually. During the same timeframe, the S&P 500 returned 9.2% with significantly more volatility.
This may not sound like a huge difference, but a study from AcreTrader found that if you invested $10,000 in farmland in 1990, it would now be worth $199,700. That same investment in the stock market would only be worth $117,500. That’s a significant difference!
“We’ve seen continued growing interest from investors in farmland due to its ability to serve as an inflation hedge, its attractive historical returns vs. low volatility, and non-correlation to other major asset classes.” – Carter Malloy, AcreTrader CEO & Founder
So what exactly makes farmland such a good investment, and why now in 2022? Here are the three main reasons why there’s a “green rush” for farmland in the 21st century:
1. Land is One of the Oldest Assets in Existence
An asset is simply a resource that has economic value. Some of these assets are newer, such as cryptocurrencies. Others, like land, are much older. Most investors look for time-tested assets that have held value for centuries.
Within that category, we have assets like:
- Farmland
- Gold
- Artwork
Both stocks and real estate have held value in society for hundreds of years. However, when it comes to holding value for thousands of years, farmland and the other assets listed above have the lead.
According to NPR, the oldest farms started around 12,000 years ago when we transitioned from hunter-gatherers to agriculture. Based on that, farmland has held value in society for over 10,000 years.
2. Farmland is a Finite Resource with a Dwindling Supply
Mark Twain said it best in his quote: “Buy land, they’re not making it anymore.”
When you invest in stocks and many cryptocurrencies out there, your biggest concern is often dilution. This happens when a new supply of the given asset hits the market, meaning you own less of it as a result. The most common way this happens is when a publicly traded company offers more shares to raise additional capital.
With real estate, including farmland, your assets can’t be diluted like this. Nobody can come over to your land and take away a little chunk of your investment, which can happen with stocks. In addition, the supply of farmland out there is diminishing as more and more of it is developed. Personally, I have seen hundreds of acres disappear in my neck of the woods in upstate New York, just in the last decade alone. This is happening all over the United States, and the world!
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3. World Populations Are Still Growing
It’s always funny how little credit people give to farmland. At the end of the day, our very survival depends on it. Most of us are completely disconnected from the food system. All of those boxes and bags of food at the grocery store have ingredients like flour and corn syrup, which are resources derived from crops grown on farmland. No farms means no food.
According to Wikipedia, the global human population growth amounts to around 83 million annually or 1.1% per year. The global population has grown from 1B in 1800 to 7.97B in 2022. All of these people are going to need food, the second most important resource next to clean water. This will increase the need and demand for farmland, a resource that’s already diminishing in supply. For this reason, among others, I’m very optimistic about the value growth of US farmland.
The Bottom Line
Savvy investors are always on the hunt for ways to grow their net worth while diversifying across different assets. For most investors, this means spreading money across real estate, stocks, bonds, and maybe even precious metals.
Now that you’re better informed, you may be ready to explore the asset class of farmland. If you want to learn more, check out my blog, Farmland Riches, which is all about farmland investing.
