High-interest rates, inflation, and slow GDP growth are all working together to increase the likelihood of another global recession. Yet, even in such a tumultuous economic environment, farmland can provide investors with a long-term safe haven asset. The historical performance of farmland investments speaks for itself; in recent years, it has been solid and reliable, surpassing inflation and remaining uncorrelated with other asset classes.
At Agro Invest Spain, we closely follow all agribusiness related news and have a wealth of knowledge about agroinvest topics. In addition, we offer agricultural land for sale in Spain, where our clients can invest in farmland and benefit from an emerging safe haven asset. This post explores how farmland is an attractive, safe haven asset in the current investing world.
Why Safe Haven Assets are Important
Safe-haven assets diversify an investor’s portfolio, which is favorable amid market instability. As the market rises or falls, it typically does so for a brief period. However, there are times when the market drop lasts long, such as during a recession. At times of market turbulence, the market value of most investments sharply declines. Even if these market shocks are unavoidable, some investors search for a safe haven asset that is negatively correlated with the general market. As most assets lose value, a safe haven asset will either maintain or increase in value to support an investment portfolio.
Primary Factors that make Farmland a Safe Haven Asset
Investors have typically made double-digit returns on farmland, with significantly less volatility than stocks. More impressive is that farmland returns are resilient during inflationary times and general market downturns. Yet, the majority of investors do not own any farms.
Patterns immune to economic cycles promote demand for agricultural investment opportunities, shielding it from the performance of the financial markets and growing due to rising consumption or population growth. In addition, because it is rare and necessary for life, attributes that are difficult to find in other assets, agricultural real estate is developing as a safe haven asset. We explore the characteristics that align farmland with the category of safe haven assets below:
Store of Value
Farmland generally retains some value despite associated risks due to its fundamental physical features. When you invest in farmland, you acquire a physical asset with inherent worth that is both real and palpable. In addition to having intrinsic value, farmland is a finite resource because it cannot be created. In contrast, a document demonstrates ownership of shares in a corporation. However, the paper is worthless by itself. So, the fact that farmland is a real asset contributes to making it a safe haven asset.
Strong Risk-Reward Profile
Investments in farmland typically yield enticing returns. In fact, farmland has generated an average annual return of about 11% over the last few decades. This aligns with the S&P 500’s annual growth rate of 10.7% since 1957. But when risk is considered, these returns are even more remarkable. The S&P 500’s standard deviation over that period was over 16%. The standard deviation for agricultural land was only 6.75%. Many variables, such as the inherent demand for real assets and long-term structural tendencies driving values upward, contribute to this stability—another tick for farmland displaying attributes of a safe haven asset.
Farmland historically does pretty well in inflationary circumstances, whereas many assets lose value. Since 1980, farmland has outperformed gold in the fight against inflation. However, contrary to gold, agricultural real estate and allied commodities have seen values rise faster than inflation over this period. This is due to the strong correlation between farmland returns and the Consumer Price Index. In addition, many raw materials used to create typical home products, which account for a sizable amount of the CPI, are produced on farmland. As a result, food and other agricultural essentials should cost more as inflation rises.
Long-Term Time Horizon
Farmland ownership offers a sizable reward but is not a quick-rich strategy. It is a long-term, tangible asset that doesn’t deteriorate or lose value over time. Over many generations, it has generated immense wealth through appreciation, rental income, and crop yields. Farmland investment falls outside the market cycle, outperforming stocks, gold, and many other assets.
Supply and Demand
The current economic climate has generated high demand for farm-produced products, which presents a chance for investors to profit from this demand by acquiring agricultural land for planned development or resale. In addition, due to better-use conversions, global warming, and other factors like the war in Ukraine, the amount of productive farmland with excellent infrastructure and water availability is scarce and shrinking annually. Furthermore, as population changes are the primary factor impacting the value of farmland, this demand should increase over time. The unique balance of scarcity and growing demand puts another feather in farmland’s cap as a safe haven asset.
The industry is vulnerable, there is ongoing global unrest, and inflation has made many investors nervous. As a result, many investors are considering agroinvest options to invest in farmland so they can lower the danger of price hikes and find an economically sound investment. In addition, the current state of the financial markets is worrying, so the best course of action is to diversify your holdings with safe haven assets and prepare for a slump.
Your Safe Haven Asset with Agro Invest Spain
Farmland has the potential to be a fantastic opportunity for investors since it can increase diversity, protect capital, act as an inflation hedge, and produce long-term returns. As a safe haven asset to defend your portfolio, farm properties for sale in Spain deserve consideration. We at Agro Invest Spain offer access to investment in the agriculture industry with almond farms in Spain. In addition, you can invest in Spain with the assurance of protection from market volatility thanks to our exceptionally managed farmland model. Are you wondering whether agricultural real estate is the best safe-haven investment for your portfolio? Follow our webinar series for expert commentary, or contact our knowledgeable team to learn more.
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