The Correlation Between Inflation and Farmland - 2025
Farmland has historically been correlated to inflation. But what does that mean? Why should you care? And how could it fit into your investing strategy?
Inflation & Economic Uncertainty
Since the 1980s, the US economy, along with other developed economies, has been in an environment of disinflation. But in 2021 that changed as supply chain disruptions pushed inflation north of 8% in 2022 and interest rates followed suit. While inflation has cooled from the highs of 2022 and interest rates have seen modest decreases, inflation is back in the headlines as consumers are once again worried about price increases given the prospect of sweeping tariffs and impending trade wars. Results from the March Survey of Consumers conducted by the University of Michigan showed a sharp increase in long-run inflation expectations with the median expectation increasing from 3% in December 2024 to 4.1% in March 2025 which is similar to the survey highs from 2022 and 2023. More recently, preliminary results from the April survey indicate consumers expect inflation in the next year to accelerate to 6.7% with the long-run expectation ticking up to 4.4%. With inflation concerns on the rise, it is important to understand the historical performance of farmland relative to inflation.
What is the historical correlation between farmland and inflation?
Since the start of USDA land values surveys in 1910, farmland appreciation rates have been positively correlated with inflation as measured by the Consumer Price Index (CPI). Farmland appreciation is 67% correlated with inflation while the S&P 500 shows a correlation of -10% since 1928. A positive correlation coefficient indicates that as inflation rises farmland values have historically increased while the slightly negative correlation to the stock market indicates that historically as inflation accelerates, the stock market has not followed suit.
For a more recent perspective, we can examine the performance of farmland in the post-pandemic inflationary period. As you can see in the figure below, farmland appreciation accelerated and outpaced inflation from 2021 - 2024. For example, in 2022 when annualized inflation peaked at a multi-decade high of 8%, farmland appreciated 11.71% according to the USDA. This fits the long term trend of farmland values being positively correlated with inflation and serves as a compelling case for farmland as an inflationary hedge in an investor’s portfolio.
Why does farmland follow inflation more closely than the stock market?
Farmland tends to follow inflation more closely than the stock market due to its intrinsic link to the commodities produced and its value as a tangible asset. As inflation rises, the cost of food and agricultural commodities generally increases, directly boosting the revenue and thus the value of farmland. Additionally, farmland serves as a real asset with a limited supply, acting as a store of value during inflationary periods when the purchasing power of currency decreases. In contrast, the stock market's response to inflation is more complex and can be negative due to factors like increased input costs for companies, reduced consumer spending, and rising interest rates aimed at controlling inflation.
Conclusion
In conclusion, farmland has historically demonstrated a positive correlation with inflation, making it a potentially attractive asset class for investors seeking to hedge against the erosion of purchasing power during inflationary periods. Unlike the stock market, which has shown a slightly negative correlation with inflation, farmland values tend to rise as inflation increases. This is attributed to farmland's inherent link to essential commodities and its nature as a tangible asset with limited supply. As concerns about inflation persist and even accelerate, investors may find farmland to be a compelling component of a diversified investment strategy.
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