Farmlands Protection Against InflationChris Casey These developments include: an increasing world population, continued limitations on arable land, fresh-water constraints, declining growth in crop yields, and increasing caloric consumption in developing countries. These trends are powerful, likely to continue, and carry a worldwide impact. But there is a far more important reason to invest in farmland today one that is not reflected in current values. Farmland is an inflation hedge. Allocating part of ones investment portfolio to farmland (particularly farmland in nations which will experience relatively high inflation) will not only protect investors, but will allow them to profit perhaps immensely. Why farmland and not some other real estate asset class? Why not own a Real Estate Investment Trust (REIT) which holds office buildings, hotels, retail shopping malls, or the like? All things being equal, it is true that all real estate should perform relatively well in an inflationary environment. In an inflationary recession, farmland values should thrive. Unlike other real estate asset classes, farmland sells its products to an international marketplace. Corn, soybeans, and wheat will fetch a similar price in any market. Accordingly, as a nations currency depreciates relative to other currencies, its exports become cheaper. A devastating inflation in the US will hurt American consumers at the grocery store, yet whet the appetite of foreigners. As demonstrated in the following graphs, the impact of the 1970s US inflation provides some precedent. Grain exports rose significantly not only in absolute volume, but also relative to global exports. Despite this historical precedent, the investment community to this day ignores farmland. In fact, few wealth managers will even consider farmland as an investment for their clients. Why? First, the wealth management industry rarely adopts a macroeconomic viewpoint, and certainly not one which deviates from Federal Reserve or other government agency prognostications. Those firms which do hold a macroeconomic opinion embrace Keynesian economic theory which leads them to share the mainstreams skewed economic expectations. Austrian economists are rare in the wealth management industry, and thus few wealth managers foresee a period of inflationary recessions. Second, the wealth management industry remains focused on real estate benchmarks that exclude farmland. Therefore wealth managers solely consider traditional real estate asset classes. Absent a change to the real estate benchmarks, no advisor or wealth management firm will act as a prime mover and incorporate farmland investments. In the cowardly wealth management industry, being the first to deviate from standard investment portfolio benchmarks invites repudiation and entails career risk. So much the better for todays astute investors, since the price of farmland excludes demand from their clients. Inflation will come. Not just in the U.S., but in the developed world at large. It may not happen this year. It may be preceded by a brief deflationary period. But it will be arrive, regardless as to the continued tapering of the Federal Reserves quantitative easing program. Once a lethal dosage has been administered, reducing the size of additional injections does not cure the patient (for additional information on US inflation, please visit the WindRock article Inflation: Why, When, and How Much? located here). As the US monetary explosion since 2008 dwarfs the increase of the 1970s, the coming inflation may be quite ugly. With the exception of precious metals, few investments can rival the inflationary protection offered by farmland. [Editors Note: Chriss piece is featured in this months edition of HomeGrown. Click here to learn more.] Christopher P. Casey, CFA(R), CPA is a Managing Director at WindRock Wealth Management and regular investment analyst contributor to The Dollar Vigilante. Using Austrian economic theory, Mr. Casey advises wealthy individuals on their investment portfolios to maximize their returns and minimize risk in todays world of significant government intervention. Mr. Casey can be reached at 312-650-9602 or at chris.casey@windrockwealth.com. 