Gold With a Dividend
Farmland has a positive correlation with inflation and is non-correlated to more traditional investments. When it comes to an inflation hedge farmland performs better than gold. Farmland has a 70% correlation with the Consumer Price Index (CPI) and a 79.84% correlation with the Producer Price Index (PPI).
According to the TIAA-CREF Center for Farmland Research, University of Illinois, nothing is a closer match to farmland than inflation.
The search for yield often results in under performance at higher levels of volatility accompanied by high fee structures. A private investment in farmland is an alternative source of yield which contributes a meaningful risk adjusted return to the portfolio owner.
The low volatility characteristics of farmland result in a higher absolute return.
100% occupancy rate for U.S. farmland
Current Income and Capital Appreciation
Farmland returns are achieved through current income which is the result of rents or share leases and capital appreciation which occurs over the lifetime of the investment.
Once a farm property is purchased it is cash rented to a local crop producer. Rental rates are derived from the quality of the property along with which crops are grown. In some cases, cash rents can be altered to reflect a larger yield and higher price.
Share crop agreements are not as common since the farmland owner assumes yield and price risk. In the U.S., farm producers compete for the opportunity to rent farmland. With a proper producer and structured rent agreement, counter party risk in many cases can be eliminated.
Since World War II, only the farm crisis of the 1980’s has the U.S. seen consecutive years of declining farmland values. The best measure of farmland returns is the National Council of Real Estate Investment Fiduciaries (NCREIF).
From the years 1998 thru 2008 the NCREIF farmland index has recorded an annualized appreciation rate of 5.23%.
Hunting leases, Conservation Reserve programs, and renewable energy projects can also add to the current income and value of a farmland property.