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To Invest or Not Invest in Farmland

Farmland prices are at all time highs and some speculate that prices will come down drastically.  While farmland prices may come down it is just as likely other assets will follow suit.  Other assets such as the S&P 500 are also at historic highs.  In parts of the Midwest prices have slid about 5-10% compared to a year ago while most of the Mid-South has stayed steady.

So why invest in farmland?  The following presents six points on why farmland is a better long term investment (10 + years) than alternatives.

1)  Over the past 20 years US farmland has outperformed the stock market when combining both appreciation and cash return (dividends).  Farmland returns historically have also beat US treasury yields. 

2)  Owning farmland as an investment provides protection against inflationary risk.  Research shows farmland hedges against inflation.

3)  Farmland ownership provides security that you can touch and feel.  Quality farmland will always have demand while paper assets such as stock or bonds may be worth zero if a company files bankruptcy or defaults.

4)  The world population is expected to increase by 35% by 2050.  This will push demand for commodities and thereby push quality farmland higher.

5)  Farmland allows high income earners an opportunity to expense or depreciate items that increase value to farmland.  This is especially true in the Delta where improvements can increase productivity.  Additionally, mortgage interest can be expensed when farmland is leverage.

6)  Farmland is often compared to gold but is considered “gold with yield.”  While gold sits in storage, farmland is producing the one irreplaceable ingredient in the food production sector.

Farmland ownership is not for the faint of heart or impatient.  Farmland investments require long term holdings and can be capital intense when investing in land with improvement opportunities.

 

By Jeffrey Hignight, Accredited Farm Manager and Real Estate Broker at Glaub Farm Management. Serving Landowners in Arkansas, Mississippi, Missouri, and Tennessee.

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