FUNDAMENTALS
LAND
POSITIVES OUTWEIGH NEGATIVES IN THIS OFTEN-OVERLOOKED FORM OF REI Farmland: An Under-the-Radar Investment
by W. J. Mencarow
early as I can remember, every weekend my Dad took me and our German Shorthaired Pointer to visit
with the Consumer Price Index (CPI) and a 79.84 percent correlation with the Producer Price Index (PPI), the two main measures of inflation according to the TIAA Center for Farmland Research at the University of Illinois. That is the best correlation of any investment as far as I know. Agriculture is our most important industry, and when inflation increases the price of food, farmland becomes even more valuable. People always need to eat. According to fool.com, “Over the last 50 years, the value
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our farm, about 25 miles east of our home in Moline, Illi- nois, and then he let our dog go crazy chasing, but never catching, all the critters. I listened and learned as he talk- ed to the farmer about the crops, seed varieties and such, and the one topic all farmers talk about: the weather. Thanks to my Dad, as an adult I have bought and sold farms in the Midwest and in Texas (crop farms, never livestock; I do not invest in anything that eats, flies, floats, or has wheels). One reason for that, among many, is to hedge against inflation. Few people know that in 2020 the Fed has created more dollars than ever before, and it is Economics 101 that too much money in circulation is the direct cause of inflation. Here is a chart of the growth in the money supply from 1984 to mid-2020. It screams “inflation ahead!” What this chart tells you is that if you keep your savings in dollars you will
of American farmland has risen by about 6.1 percent per year, with only five down years during that pe- riod. Add in the cash rent yields, and the return to investors has been even more impres-
get your head handed to you on a platter. You must in- vest in inflation hedges, and no other invest- ment offers the long-term pro-
sive. Since 1991, farmland has produced a positive return every year, generating an average annual return of 11.5 percent, according to the USDA. To put that return into perspective, it has outperformed all other asset classes except the Dow Jones REIT Index during that time frame.” Farmland will diversify your portfolio because it has little-to-no correlation to the performance of other asset classes. Gold is a popular inflation hedge, and its single advantage over farmland is its liquidity. But gold is ex- tremely volatile, and it does not produce income. Farm-
AdenForecast.com August, 2020
tection against inflation with so many other advantages as does farmland. No investment has a perfect correlation with inflation, but farmland has a 70 percent correlation
30 | think realty magazine :: october 2020
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