This unconventional inflation hedge may be more effective than gold (2024)

By Frances Yue

Unlike gold, investments in farmland may help investors generate income

Investment in farmland may provide a better hedge against inflation than gold, according to asset-management firm Nuveen.

"Many agricultural commodities, including various foodstuffs and other raw materials, are components of the basket of goods used to calculate the Consumer Price Index, perhaps the most familiar gauge of inflation," Saira Malik, chief investment officer at Nuveen, wrote in a Monday note.

"As prices for these commodities rise, so do the revenues and cash yields generated by the farmland assets that produce them," Malik said.

Investors are worried about still-sticky inflation, with the yearly consumer-price index stuck well above 3% in March, far from the Federal Reserve's 2% target. The CPI data for April, due Wednesday, remains the biggest focus for markets this week, as the data may threaten stocks' near-record run.

U.S. stocks ended mostly lower on Monday, with the Dow Jones Industrial Average DJIA snapping an eight-day winning streak. The S&P 500 SPX closed down less than 0.1%, while the Nasdaq Composite COMP rose 0.3%, according to FactSet data.

Compared with gold (GC00), a traditional inflation hedge, farmland offers higher return with about a third less volatility, noted Malik, citing data from Bloomberg.

Meanwhile, investments in farmland may help investors to generate income from the lease obligations and to capture capital appreciation from rising land values over time. In contrast, gold doesn't generate any income, Malik wrote.

Farmland investment could also be diversified with different regions and crop types, noted Malik.

In addition, farmland is likely to see continued inelastic demand, as farmers will need to produce 70% more food to meet rising demand, with the world's population on pace to expand to 8.7 billion by 2050, Malik noted.

-Frances Yue

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