Whilst farmland investment may seem like a bit of an exotic asset class to some, there are some very good reasons for investors to consider farmland investing. We are not talking about agricultural funds here, but rather about direct investment in farmland.
Consider these points:
1) Food prices are at record high, and farmland investing is a wonderful way to leverage this trend. Consider the graph below from the United Nations Food and Agriculture Organization (FAO).
2) As a hard asset, farmland investments are also an excellent inflation hedge. With western central banks having already engaged in extensive Quantatative Easing (QE), and likely to engage in further QE as well, investors would be well-advised to consider adding an inflation hedge of some kind.
3) Farmland investments generally pays good current income. With interest rates in the West near zero and likely to stay that way for the foreseeable future, prudent savers are being punished and are forced to look elsewhere for current income. Farmland is a good option as an alternative investment to complement a more traditional portfolio. Whilst farmland prices in the UK, Europe or the US may not have much further to rise, farmland investment in Africa - to take just one example - is an excellent way to play the much lower price of agricultural land in emerging markets.
4) Farmland is also an extremely stable asset, and adds diversification to a portfolio as it does not respond to the same factors as those which influence financial assets such as stocks and bonds. After all, land and crops do not care what the DOW or FTSE or DAX do on a daily basis!
For those looking for an intriguing niche investment, farmland is an option well worth considering.