While farmland has been a strong performer recently due to its position as an inflation hedge, there are some factors that investors need to consider before committing their capital.

Lack of Liquidity

Because a great deal of the return comes from the sale of the land, farmland is a long-term investment, like most other real estate investments. For some investors, this long-term horizon is a positive, but for others, waiting five years or more for any kind of substantial return is not ideal. Farmland investments remain illiquid and as of now, there are no secondary markets on any fractional farmland platforms, requiring a investors to keep a substantial amount of cash locked up.

Climate Change

While climate change could boost the value of some farmland as it renders existing farmland unusable, it is of course a risk to the industry as a whole. Investors also need to consider the potential effects when evaluating individual tracts of land. It is impossible to predict exactly which locations will be the most untouched by climate change, and as such, diversifying geographically is highly recommended.

Macroeconomic Concerns

There are also a number of macroeconomic concerns out of the control of farmers, with supply chain issues currently affecting both costs and revenues. There is also the possibility of inflation affecting the cost of fertilizer, equipment and labor, canceling out the benefits of rising food prices.

Additionally, the labor shortage affecting many U.S. industries has hit agriculture particularly hard as fewer people are willing to work farm jobs and this is unlikely to change going forward. Immigration policy also will affect the potential labor supply. Labor issues are a bigger concern for permanent crops which require more manual labor, though the entire industry is affected.

Indoor Farming

Decreasing amounts of farmland have led to the rise of indoor farming, urban farming and vertical farming. These efforts have become more successful financially as they require less water and can deliver greater yields with no weather risk. Investors can mitigate this risk by investing in indoor farming companies in addition to their farmland portfolio.

‍