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Direct investment in farm land offers investors a solid choice for asset diversification with income stream and historically low correlation to other investment assets. Farm land offers current income, potential for appreciation over time as well as inflation protection.
From 1970 to 2013 agriculture land values returned, on average, an annual 10.68% according to the USDA and out performed both S&P 500 and 10 year Treasuries during that period. Farmland returns have had a historically low or often negative correlation with stocks and bonds. Farm land prices have generally risen faster than the rate of inflation, giving the farm investors inflation protection.
The case for investing in farm land is not only strong now, but several long term trends will become stronger due to several compelling fundamental factors.
Growing population 25 million more per year
Less arable land and water
Need to double food production by 2050
Changing dietary habits more prosperous population buying higher quality calories
Natural resources are in a finite supply with values rising over time
The global demand for food, which is driven by increases in global population and income growth per capita, will be the key drivers of farm land values.
Growing population: requires more food/ Demand
The world suffers from a food scarcity problem.
How are we going to increase food production by 25% to feed an ever growing global population, which is projected to increase to 9.3 billion people by 2050?
Worldwide demand for more food and fiber will growth exponentially with population growth especially with middle class consumers in developing nations who demand high quality food products.
The UN FAO projects that crop land acreage will increase only 4.5% by 2050, but population will increase to 9.5 billion in that same time period.
Returns for Farmland- Historically Strong Returns
For the past 22 years US farm land has achieved a 10.7% return on NCREIF Farmland Index. It has outperformed stocks and bonds on an annualized basis during that period providing income as well as capital appreciation.
Farmland can also act as a hedge against inflation. Returns for farmland have outpaced inflation in a variety of markets.
Arable farmland with excellent water, soil, and climatic conditions are in tight supply now due to urbanization and the projected effects of global warming. Direct ownership of farmland can be an excellent investment opportunity to capitalize on growing commodity demand and limited land/production capacity.