Farmland has been an attractive asset to own because of its potential for returns during inflationary periods.
Institutional investors and wealthy families are interested in investing in agricultural land because those returns have a low correlation with stocks and other asset classes and provide a steady return, Purdue University agricultural economist Todd Kuethe told Bloomberg this week.
As inflation has risen in 2021, more investors are drawn to allocating money to the sector as a hedge, according to asset managers.
During the past six months, every call with an institutional investor has included a conversation about inflation, said Stephen Johnston, a managing partner at Calgary-based Veripath Farmland Partners, which owns 90,000 acres in Western Canada across its portfolios.
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Similar to the value of homes rising exponentially in the U.S,, farmland has also appreciated during the global pandemic.
In the U.S., the value of farm real estate rose by 7% in June compared to a year ago, which is the largest increased since 2014, based on a survey conducted by the U.S. Agriculture Department. The cost of an average acre is now $3,380.
The correlation between agricultural land and inflation has been “pretty strong,” said Kuethe. Land values tend to rise when food prices rise. The current farm land is rising in valuation due to extremely low interest rates and the improved global trade tensions, he added.
Bill Gates and his ex-wife Melinda French Gates are the largest owners of farmland in the U.S. in 2020, based on a ranking by the magazine called the Land Report. The majority of investors in farmland are institutional investors.