By Artem Milinchuk, Founder & Head of Strategy at FarmTogether

Persistent market dislocations in 2025—from elevated interest rates to geopolitical tensions—are prompting a recalibration of portfolio risk. Institutional and accredited investors are rebalancing their growth-oriented strategies to incorporate a larger defensive allocation. Traditional safe-haven assets like U.S. Treasuries and gold are seeing renewed flows—but increasingly, farmland is joining that shortlist.

With a historical track record of income stability, low volatility, and inflation resilience, farmland is being reconsidered not just as a niche alternative, but as a modern ‘flight to safety’ asset, alongside private credit and infrastructure.

Farmland’s role can be more clearly understood when evaluated alongside other core defensive alternatives—through the lens of volatility, return consistency, and inflation protection—at a time when capital is seeking durable anchors.

Macroeconomic Context: A Rerating of Risk

After a long period marked by low interest rates (FRED), abundant liquidity, and strong appetite for growth equities, conditions began to shift meaningfully leading into 2024. The Fed’s tightening cycle, persistent inflation, geopolitical instability, and fears of recession have pushed investors to reassess portfolio allocations. As of Q2 2025, the market remains in flux—while inflation has cooled somewhat from its 2022 peak, some argue a soft landing remains uncertain, credit markets are tightening, while equity valuations remain elevated.

In this environment, investors have been rebalancing toward real assets and yield-generating strategies with historically lower volatility and better downside protection. Alternatives such as farmland, gold, bonds, and private credit have seen increased allocations as a result.

Farmland: Biological Yield Meets Real Asset Stability

Farmland investment has historically delivered a rare combination: income-generating real asset exposure with equity-like returns and bond-like volatility. From 1991 to 2024, the NCREIF Farmland Index returned an average annual total return of 10.15%, with a standard deviation of just 6.82%—a risk-adjusted performance that outpaces many other asset classes.

Key Characteristics

• Low Correlation to Equities: With a historical correlation of -0.11 to U.S. stocks, farmland acts as a true diversifier, especially valuable in periods of equity market drawdowns.
• Inflation Protection: Agricultural land values and commodity prices tend to rise with inflation, preserving purchasing power. In fact, farmland has demonstrated strong performance and resilience during several inflationary periods, including the 1970s and the post-2020 inflation surge.
• Income Stability: Leased farmland typically provides consistent annual rental income. In some structures (e.g., row crops or permanent plantings), this can be augmented with crop share or profit participation.

In 2022–2024, many institutional allocators increased their farmland exposure in response to these dynamics. PGIM, PSP, and Nuveen all maintain material positions in U.S. agricultural land. According to the USDA, institutional ownership of U.S. farmland rose to nearly 3% in 2023—a small but growing share of the $3.5 trillion market.

Gold: A Traditional Safe Haven, But Volatile

Gold’s role as a store of value is centuries old. During market stress, it often rallies due to its perceived safety and zero counterparty risk. However, gold lacks income generation and can exhibit meaningful volatility—making it a useful hedge but an imperfect standalone asset.

Performance Highlights:

• From 1992 to 2024, gold returned approximately 6.25% annually (nominal), though with significant year-to-year swings.
• Real returns vary depending on inflation timing; gold has periods of sharp underperformance (e.g., the 1980s and 1990s) when inflation is low or rates are rising.
• Despite volatility, gold remains an effective short-term risk hedge. In 2008 and 2020, it outperformed equities substantially during the drawdowns.

For many investors, gold functions as a short-term flight-to-safety tool or a portfolio hedge, but lacks the long-term compounding or income benefits of other real assets.

Treasuries: Capital Preservation, But Limited Upside

U.S. Treasury bonds have long been the default safe haven. In periods of deflation or recession, Treasuries tend to outperform thanks to declining interest rates and a flight to liquidity. However, in inflationary or rising-rate environments, real returns can be negative—highlighted in 2022, when the Bloomberg U.S. Aggregate Bond Index posted a record -13% annual return.

Current Outlook:

• As of May 2025, 10-year Treasuries yield 4.46%—higher than the post-2008 average, but still lagging inflation-adjusted farmland returns.
• Volatility remains low (3–6%), but upside potential is capped, and reinvestment risk persists if rates fall.
• Treasuries remain useful ballast, especially for liquidity needs, but don’t offer the return or diversification benefits of real assets like farmland.

Private Credit: Yield with Liquidity Trade-Off

Private credit has grown rapidly as banks have pulled back from middle-market lending. Direct lending and structured credit funds offer yields of 8–12%, appealing in a high-rate environment. Yet they come with risks—illiquidity, borrower concentration, and potential defaults in a downturn.

Risk Factors:

• It’s a relatively new asset class that has yet to experience a full market cycle, unlike more established asset classes.
• Correlation with equities can rise in crises, particularly if borrowers face recession-driven stress.
• While many funds are floating-rate, sustained rate hikes can pressure underlying companies.
• Managers with strong underwriting and covenant discipline are key to performance consistency.

Private Credit has seen a rapid rise after 2008. But the asset class may have peaked. Last year, direct lending hit a record-high issuance of $145 billion, up 79 percent from 2023, according to Fitch Ratings, which anticipates a deterioration of credit this year “amid tariffs and policy volatility.” Rasmussen warns: “We haven’t seen a default cycle since 2008. This is an untested asset class.” 

Farmland’s Differentiated Role in 2025

In today’s environment, farmland uniquely combines the features investors are seeking in a defensive allocation:

• Real Asset Characteristics: Tangible, productive land historically appreciates in value over time, supported by finite supply and rising global food demand.
• Uncorrelated Returns: Independent of public market movements, farmland has shown resilience in past crises (e.g., 2008, 2020).
• Inflation-Resilient Yield: Lease payments tend to adjust with inflation, while biological growth (crop yield improvements) compounds returns over time.
• Downside Protection: Unlike commodity speculation, farmland is backed by underlying productive capacity—not just market price dynamics.

Despite rising interest rates and tighter financial conditions, high-quality U.S. farmland has continued to draw institutional capital. The value of farmland held by investment groups more than doubled over the past three years and had an almost 9x increase since 2008, surpassing $16 billion by the end of 2023, driven by increasing demand for food and the limited supply of productive land. Pension funds and endowments are increasingly allocating to farmland as a source of diversification and inflation protection.

Interest in regenerative and sustainable farmland is also accelerating. Investing in farmland managed with regenerative practices can enhance long-term resilience and improve risk-adjusted returns through better soil health, input efficiency, and climate adaptation.

From Speculation to Stability: Where Capital Is Flowing 

As investors continue recalibrating risk in 2025, alternative assets are playing a larger role in both institutional and high-net-worth portfolios. While gold, Treasuries, and private credit each serve a role, farmland stands apart for its long history of low volatility, uncorrelated returns, and inflation-protected income.

It’s not a prediction—rather, a historical pattern repeating: when uncertainty rises, real assets with productive value become more attractive. Farmland isn’t just a hedge. For many, it’s becoming a cornerstone.

References:

• https://www.lpl.com/research/blog/outlook-2024-a-turning-point https://www.purposeinvest.com/thoughtful/2024-outlook-the-great-reset-final-act
• Source: NCREIF Farmland Index vs. S&P 500 correlation, based on historical annual total returns, 1991–2024.
• According to NCREIF, U.S. farmland delivered a 10-year average annual return of ~10.3% with low correlation to equities, while 10-year Treasuries averaged 2.4% with limited diversification during inflationary cycles (NCREIF, FRED).
  

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