For years, I’ve been extolling the virtues of owning farmland to my clients and others in the investment community. In many cases, the response has been that of skepticism… “of course you’re promoting farmland, that’s what you sell for a living”. Recently, though, University of Illinois professor Bruce Sherrick published an article on www.farmdocdaily (Illinois Farmland Investment Performance Revisited) that strengthens my case. Utilizing information from the USDA Farmland Survey published last month, Dr. Sherrick compared the long-term risks and returns of owning farmland with various other assets. His analysis showed that farmland, relative to other investment alternatives, has A. low systematic risk; B. high relative returns for the risk; and C. provided a good insulation against inflation. These factors would be considered an almost unbeatable trifecta in the world of high finance and investments.
I think it is important to point out that the analysis covered a 40-year time period (1970 – 2010). This horizon is much longer than what many investors might prefer. But most of us in the industry typically emphasize the fact that land is a long-term investment, not something that you can just jump in and out of with the hopes of making a quick profit. Realistically, every investment will standout if the right time period is used in the analysis. But that’s what I like about this study – the data and returns from the worst time period ever for the land market (the 1980s) is included… and farmland still shines.
