Investing in farmland can be a smart move for investors looking to hedge against inflation and diversify their portfolio. With stocks struggling and inflation remaining high, agricultural land offers several sources of income to investors. These include rents from farmers, revenue generated from the farm, and appreciation of the land over time.
The demand for agricultural products is only increasing as the world’s population grows, and the value of farmland is also rising. Sustainable farming techniques are also gaining popularity, making farmland a reliable investment choice.
According to data from Nuveen, investments in American farmland have returned an average of 11% per year over the past four decades, similar to the long-term returns of the stock market. Farmland is also less volatile than other mainstream financial assets, with a smaller standard deviation of average annual returns. This means that farmland is less prone to price swings and can provide steady returns even during economic downturns.
Investing in farmland can also serve as an inflation hedge, as the value of farmland tends to rise when consumer prices go up. The NCREIF Farmland Property Index rose 10.2% in 2022, higher than the rate of inflation, which hit a four-decade high of 9% in June.
However, investing in farmland is not a mainstream investment and requires a different and more complicated buying process than stocks or bonds. It’s essential to do your due diligence before investing, as investments in farmland require a larger chunk of cash upfront and are less liquid than other investments.
Despite these drawbacks, investing in farmland can be a wise choice for those looking for a stable, long-term investment that can weather economic downturns and hedge against inflation. As always, investors should consult with a financial advisor to determine if investing in farmland is right for them.
Is Farmland a Good Investment?
Values of Farmland are Increasing
The University of Missouri reports that land values are rising across the state, frequently faster than anticipated. Non-irrigated cropland increased by 2% to $5,555 per acre between 2019 and 2020. During this time, the value of pastureland increased even further, reaching 6% annually to $3,374 per acre. Before making an investment, take your time investigating various sites because the value of farmland varies by location. You may opt to buy irrigated or non-irrigated crops, pastureland, timberland, or recreational/hunting land, depending on how you intend to manage your investment.
High Demand for Food
By 2050, the amount of food we currently produce will need to be almost doubled due to the growing world population. Only 7% of the planet’s land can be used to grow food, and the vast majority of that area is already in use. Demand for land rises along with rising food prices.
The dearth of land ideal for growing food raises the value of your investment whether you decide to farm yourself, lease your land to another farmer or rancher, or sell the land later for a profit.
An Inflation Hedge is Farmland Investment
US annual inflation reached a 13-year high as of September this year. This indicates that compared to last year, you are paying more for the same goods and services. In other words, the dollar now has less purchasing power. Gold, Treasury Inflation-Protected Securities, and real estate are the only investments that frequently keep pace with inflation.
Farmland can act as a hedge against inflation and could assist maintain the value of your investments over time.
Some Taxes are Exempt for Farmland
Investors in agricultural land are eligible for a variety of tax deductions and exemptions. In comparison to residential property, which is assessed at a rate of 19 percent, agricultural property in Missouri is assessed at 12 percent of its market value. Federal tax deductions for mortgage interest on agricultural property can help you pay less in taxes each year.
A working farm on your property entitles you to several tax exemptions on your Missouri state taxes as well as exemptions from the federal government’s wealth tax.
Your portfolio can diversify with farmland
Both immediate and long-term wealth-building opportunities are provided by farmland. A physical asset, the land parcel itself usually retains its worth in your investment portfolio.
Its low risk profile can assist in holding diversity and provide a counterbalance to some of your riskier stock market investments. A revocable living trust can be used to transfer land as a means of wealth to your heirs.
Investing in Farmland Vs Real Estate
Farmland offers predictable returns on investment, little correlation to “traditional” assets like bonds and equities, and a hedge against inflation, making direct investments in farmland an attractive opportunity.
Since farmland, like commercial real estate (CRE), is a sector with a high barrier to entry, investors have historically had limited access to it as an investment. These once-significant hurdles to entry have been reduced by the development of crowdfunding platforms.
Even for real estate investors, the idea of investing in farmland may sound alien. However, by utilizing similar frameworks from traditional real estate investing and our team’s knowledge, you may access the $2.5 trillion US farmland market and benefit your portfolio.
Investing in Farmland Vs Real Estate | Risk and Returns
Similar to conventional real estate, there are various sorts of farmland, each with their own dangers and possible rewards. Similar to CRE, you may classify various types of farms according to their intended use to get a sense of how market trends affect prices.
Whereas CRE consists of residential, retail, office, hotels, and industrial space, agriculture consists of pastureland and various cropland kinds. Row crops and specialty crops are classified as annual crops, and permanent crops are classified as farmland. Crops that are planted and grown annually are exactly that. The major grains and staples (corn, soybeans, etc.) are grown in rows, and vegetables make up the majority of annual speciality crops.
Permanent crops are unique in that they take a while to mature and have 20+ year economic lifetimes, with some lasting even longer.
Less risk results from more ability to adjust to market movements. A manufacturing plant is less versatile than an office building, which may be rented out to many kinds of enterprises in a city with numerous industries. When crops are planted annually on farms, producers can take into account price and consumer patterns before determining what to plant the following year (i.e., removing what wasn’t lucrative).
Row crops often have smaller margins due to their more consistent demand. Row crops, like commodity grains, are needed for a variety of applications (food, feed, etc.) and frequently have some level of government protection.
Permanent crops, in which we invest primarily, carry a larger risk but also a potential higher reward. Trees take several years to become economically successful, tying an owner to the trees they have already planted or forcing them to make the pricey option to start over.
We always consider market dynamics & trends when buying mature trees or determining what to plant for a new development because it can result in poor pricing for producers when there is an overstock, as is the current situation for wine grapes. Below, notably in the income-derived returns, you can observe the difference in return volatility between annual and permanent crops.
The returns on real estate can be divided into income and appreciation. In the interim, you can estimate appreciation returns by marking the property to market. Appreciation returns won’t be realized until the property is sold.
Rent or revenue both constitute income. In CRE, rent is typical and lease terms vary by industry.
Nearly 40% of US farmland is rented, and over 50% if you only consider cropland and leave pastureland out.
Leasing to an operator can allow you to earn rental money just like you would from any other kind of tenant in real estate. There is also revenue-sharing, or variable rent, specifically for agriculture.
With this structure, the operator will pay a considerably smaller fixed rental rate with a variable part based on revenues. With successful harvests, both the owner and the operator make more money (or less in a poor year).
Farmland Investment in Turkey
Are you aware that Turkey is the seventh-largest agricultural producer in the world?
Foreigners can readily invest in Turkish agriculture if they own at least 10.000 square meters of planted farmland in their name.
Turkey’s great weather and soil make it an excellent location for agricultural ventures.
A number of crops, including apricots, hazelnuts, cherries, tea, chestnuts, olives, figs, and tobacco, are produced and exported by Turkey as one of the nation’s top producers.
At MKN Investment Group, we give investors the chance to make significant returns by purchasing farmland in Turkish cities.
We have a group of knowledgeable experts who offer thorough support so that investors may get the most out of their agricultural investments. The best agricultural investment prospects are identified by our team, and they are scaled to generate the highest returns for investors.
We cordially invite investors from all around the world to benefit from Turkey’s profitable agricultural investment opportunities. You can scale and make money through the world of Turkish agricultural investment prospects with the assistance of our staff.
The Turkish economy depends on agriculture to the tune of 23%. The properties located in the active farming zone are becoming more well-known and well-liked as a result of the rising demand from domestic and foreign investors.
We have observed a sharp rise in value in various areas of the Turkish cities of Manisa and Antalya and Denizli. According to figures from prior years, the price of farmland has been rising by around 20% annually. This makes predicting the future of farming in the chosen locations simple.