Why Farmland is Considered a Good Inflation Hedge
May 16, 2022
One of
the accepted "givens" in financial management is that owning real
property (homes, commercial real estate, or land) is typically a good hedge
against rising inflation. Right now, inflation and how to deal with it is on
everyone's minds. One of the often-mentioned reasons for buying and owning
farmland is that it is also a hedge against rising inflation. The following
chart from Dr. Allen Featherstone from Kansas State University demonstrates
that point.
The
analysis uses USDA land valuations which are an average of all types of
farmland in a state. Annual growth rates are calculated for two time periods
and are shown for nominal growth and for real or inflation-adjusted growth. The numbers in red are not negative but show the differences
in growth rate between the two time periods as explained at the bottom of the
chart. Nominal and real growth rates are positive for all.
The key
takeaway from this analysis is that real annual growth rates for farmland are
in the range of 2% above the inflation rate over time. This is why farmland is
considered a good hedge against rising inflation and why some are buying
farmland today.
Randy
Dickhut
Senior Vice President - Real Estate Operations
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