Land REITs: Disinflation Headwinds
One of the hottest "inflation hedges" during the pandemic, land REITs have fallen out-of-favor as rising rates and normalizing supply chains have created disinflationary - and even deflationary - headwinds for commodities.
While services sector inflation remains sticky, goods-related inflation has fallen dramatically over the past nine months, with some inflation reports now showing goods deflation levels typically seen only in recessions.
Grains prices have declined 25% from their 2022 peak despite the ongoing Russia/Ukraine War, but remain 50% above 2019-levels. Lumber is lower by more than 50% from their pandemic-era highs.
Farmland REITs have been pressured by a "triple whammy" of headwinds - lower crop yield due to extreme weather, lower crop prices, and significantly higher interest rate expense - but the selloff has brought valuations to reasonable levels.
Timber REITs have surged 20% since May as the U.S. housing industry emerged from its year-long recession. Long-term fundamentals remain attractive given pent-up housing-related demand, but near-term upside now appears limited.
