Back to the land? Investing and the coronavirus
Covid-19 has exposed the inherent volatility of the market—agricultural investment offers some solace.
As humanity collectively attempts to grapple with the new realities that the coronavirus pandemic has wrought, we are necessarily shifting gears to look for information , solutions and new ways of being. Global supply chains and toilet paper production have become hot topics in our largely digital conservations, bookended by painful peeks at retirement portfolios. For individuals heavily invested in the stock market, the short term isn’t looking great. This pandemic has exposed weak spots in our economy and forced us to re-evaluate some of our assumptions. As someone who has been involved in the financial industry for my entire career, I am once again grateful for my focus in agriculture—for its relative stability and all around soundness. That’s not to say that Ag isn’t being affected by this—it is. But the effects are likely to have a net positive effect and serve to highlight the general stability of the Ag market.
Ag Diversifies with Low Volatility
As anyone with value tied up in the stock market right now knows, investing carries some inherent risk. And while it’s been long advised not to put all your eggs in one basket, diversification isn’t just for the risk adverse. It’s a financial necessity for hard times and provides the best mitigation against unforeseen losses like those that we are facing today. Agricultural investments provide some protection against inflation, and while returns may not skyrocket like the latest fashionable tech start-up, they have significantly less volatility and are not correlated to stock market performance. Significantly, they are backed by the tangible, transferable asset of land. While the stock market was dropping— 9.5% on March 12th and another 12% a few days later, agriculture saw upward gains. Commodity prices have since stabilized, but it serves to underpin the fact that food is a basic need that will never run out of demand, even through the most volatile economic periods.
All of this is not to say that Ag is a one size fits all solution, and agricultural investments are by no means bullet-proof, but it is an industry that supplies people with one of their most basic needs and so has an asset validity that is hard to argue with. With the human population expected to increase by two billion people over the next three decades, agricultural production is not an industry expected to slow down anytime soon. The United States remains the world’s largest net exporter of food and will continue to service this ongoing increase in demand.
Value in the Land
Not only has land been a primary asset since the invention of money—maybe even before that— but it historically has preserved its value with less volatility than other real asset classes. This is in part due to the reliability of income generated from agricultural land. Food is an essential resource required for humans day to day. As we collectively look forward to a return to normalcy, we can be certain that our position will look much different when we finally do emerge.
This pandemic has been the cause of tragedy for many people around the world. It has served to expose some very real vulnerabilities in our economic foundations and been the cause of serious financial anxiety for countless businesses and individuals. But, it has also reminded many Americans of the spirit of unity and innovation that are responsible for the reputation and character of this country. There has never been a better time to build a future on solid ground.