Let's face it - the markets are in a scary place now. Though corporate earnings lag, stocks and bonds are at or near all time highs, fueled by cheap money buy-backs and margin. Mike Larson, an investment analyst with Weiss Research, calls the current investing environment the "everything bubble," and predicts that the next crash could eclipse the global financial crisis of 2007-08. Student loans, subprime auto loans, and negative interest rate sovereign debt are at record levels. Commercial real estate lending standards, a reliable leading indicator of previous recessions, are tightening.
Moreover, traditional safe haven alternatives such as cash and certificates of deposit are also at risk due to inflation in the era of persistent near-zero interest rates. Retirees on pensions and social security are challenged to find yields to maintain their standards of living. The combination of factors driving the market's precarious state is causing many investors to consider diversifying their portfolio with alternative investments. Commercial real estate, precious metals, oil and gas are well known alternative asset classes. A less common, but no less significant investment class is income producing agriculture.
"The US government has a technology called a printing press...that allows it to produce as many dollars as it wishes at essentially no cost." Ben Bernanke, former Chairman of the Federal Reserve
Agriculture, in its many forms, offers a variety of risk/reward profiles which can be spread across various geographies and crop types for diversification. With land and commodity prices depressed in some areas, new opportunities for investors interested in reliable yields and appreciation are emerging every day. Like commercial real estate, investments in agriculture tend to be uncorrelated with the equity market. However, agriculture doesn't generally follow the strong cyclical patterns of real estate so investments can be less volatile.
Though past performance is no indicator of future returns, the National Council of Real Estate Investment Fiduciaries (NCREIF) shows that over the ten year period ending September 2016, farmland out-performed not just the S&P 500, but other forms of real estate, including apartment, hotel, office, retail, and industrial.
Total Return Trends by Asset Class (as of September 30, 2016)
Note, the NCREIF report represents US returns only; other geographies offer even greater possibilities for land appreciation. Institutional investors such as pension funds have understood agriculture's advantages for years. It's now possible for individual investors to take advantage of the benefits that farmland can bring to their portfolios.
*NPI is the NCREIF Property Index.