Investing in us farmland

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Since these services are typically restricted to accredited investors, they're not for everyone. Though prices have plateaued over the last 5 years, population trends suggest continued upside. Value outpaces inflation, with potential for significant increase in value. Tangible, real asset relative to stocks and other paper assets, which tend to be more volatile. Provides significant tax breaks. Cons US-based asset means investment value will decline if the US dollar experiences significant inflation or depreciation.

Climate change and shifts in growing zones over decades also present a significant risk of losing viable farmland Less liquid investment and not as easily tradable as stocks. Verdict US farmland is a tangible investment with a strong track record which is expected to continue to appreciate given population trends and the increasing demand for food. It is a good investment if you want to diversify your stock or retirement portfolio.

Article sources 1 Financial Times. March 29, February 24, December 5, May 22, April 11, Advertiser disclosure At Finty we want to help you make informed financial decisions. We do this by providing a free comparison service as well as product reviews from our editorial staff. Some of the products and services listed on our website are from partners who compensate us.

This may influence which products we compare and the pages they are listed on. Partners have no influence over our editorial staff. For more information, please read our editorial policy and find out how we make money. Over the past 40 years, agricultural land has demonstrated a low correlation to both stock and bond indexes.

Moreover, a globally diversified portfolio of agricultural investments can further reduce risk, as it spreads its exposure among a variety of crops, government structures and climates. When there is drought in Russia, for instance, growing conditions in Australia may be very positive. By investing globally, the impact of unexpected events in any single portion of the portfolio can be reduced. Inflation hedging qualities Historical farmland returns have outpaced inflation in a variety of market environments.

How to invest in farmland With strong fundamentals and historically attractive risk and return characteristics, agricultural investments are increasingly compelling for institutional investors. Still, gaining an exposure to this relatively nascent asset class requires an understanding of certain basic characteristics and structures.

This section discusses some of the most important factors to consider in developing an agricultural investment strategy. Global versus domestic exposure Institutional farmland investing is more well-established in the U. An investment strategy focused solely on the U. However, agricultural investments in developing countries can offer increased capital return potential because of higher economic growth and the ability for investors to improve farm productivity by upgrading infrastructure and modernizing management.

In addition, a global portfolio provides exposure to a diverse variety of markets, crops, growing seasons, weather, economies, currencies and governments— reducing the impact of changes in any single area. Different types of agricultural assets Different types of agricultural investments, each with distinctive risk and return characteristics, can further diversify a portfolio.

Row crops These crops are planted and harvested annually and include grains and oilseeds such as corn, soybeans and wheat. Typically, row crop investments produce relatively stable income returns over time since planting decisions can be made annually. A number of row crops, such as corn, soybeans and sugarcane, are also used in the production of alternative fuels. Given their lower risk profile compared to permanent crops, row crops often serve as the core of a diversified portfolio.

Permanent crops Permanent crops, such as wine grapes, tree nuts, citrus, apples and avocados, have a long lifespan, typically 25 years or more. They mature three to seven years after planting, so there is usually a lag between investment and realization of returns. These crops historically have delivered higher average income returns than row crops, but they also have experienced higher volatility on a year-to-year basis.

Value-added investments These are investments in related companies and technologies that aid in the production and distribution of food. They might include fruit packing facilities, grain storage facilities, water treatment companies and other allied businesses. Generally, only portfolio managers with sufficient scale and strong relationships within the sector consider these types of transactions, which allows them to participate in opportunities that are related to agriculture, but further up the value chain.

Direct farmland investments vs. Although commodity futures are highly liquid and readily investible, they can also be extremely volatile, with prices driven by short-term market movements and sentiment. Moreover, by purchasing commodity futures, investors participate only in the appreciation potential of that specific commodity and not in the increase in the value of the land where it was grown, or the added value that can come from investments in agricultural infrastructure.

By purchasing farmland, investors gain access to the key factor of production that is most closely tied to the fundamental factors supporting the investment thesis. Direct investments in land are less liquid than commodity investments but offer investors the chance to benefit from long-term appreciation trends in farmland.

As discussed, farmland is a key factor in the production of food. As the demand for food rises and the supply of arable land declines due to increased industrialization and development, owners of high-quality farmland are positioned to benefit for years to come. The tenant pays the lease up front and keeps any profit above the lease amount.

In a cash flex structure, the tenant pays lower cash rent, but gives up a portion of the upside of crop production based on commodity pricing during the crop year. In both structures, the tenant is expected to maintain the quality of the property during the lease term. Share lease: In a share lease, the investor and tenant each provide a share of the inputs to produce the crops.

Custom farming: In this structure, the investor selects an operator who will farm the land and provide the necessary inputs, manpower and machinery. The investor takes all the risk and reward of crop production while making minimal direct capital investments in farmland equipment and personnel.

Direct farming: Here, the investor operates the property directly, providing the machinery, personnel and crop inputs needed. This structure offers the best return potential to the investor, but also the highest degree of risk. Managing risk in agricultural investment As an institutional asset class, farmland is less developed, more illiquid and more inefficient compared to traditional asset classes. Many deals take place off-market, making reputation and local market knowledge vitally important in accessing and closing transactions.

It is difficult to measure performance since no global benchmark has, as of yet, been established.