Farmland: The Red Thread – Alternatives

Energy, inputs, and farmland resilience

As energy prices ripple through global agriculture, investors are questioning farmland's resilience. Dan Murray, Head of Farmland, cuts through the noise, explaining why rising input costs may test farmers in the short term, but need not derail the long-term strength and value of well-structured farmland investments.

What is the current concern around energy and fertilizer costs, and why are investors asking about farmland risk now?

Recent geopolitical developments have driven a sharp rise in global energy prices, which has flowed through to higher fertilizer, fuel and transportation costs across agriculture. This has prompted questions from investors about whether rising costs could pressure farm profitability and ultimately weigh on farmland values and capital returns.

Our view is that while input costs are clearly elevated in the near term, this environment does not fundamentally threaten the stability of farmland values - particularly for a diversified, leased farmland portfolio strategy. Importantly, this is not the first period in which agriculture has faced higher energy-driven cost inflation, and history suggests that farmland has proven resilient in similar environments.

Why might the media narrative seem to overstate the risk to farmers and farmland?

Much of the public commentary treats agriculture as if all farms are exposed in the same way and must absorb higher costs immediately and fully. That framing misses several crucial realities about how modern farming actually works.

First, higher input prices are elevated, but not unprecedented relative to expected farm revenue. Farmers have navigated periods of materially higher real input costs in the past without systemic distress.

Second, many producers do not purchase fertilizer and fuel at spot prices; a substantial portion of inputs is pre-ordered or otherwise secured earlier in the season. As a result, headline prices often overstate the actual marginal cost increase farmers face in a given year.

Finally, agriculture is far more operationally flexible than capital-intensive sectors like airlines or shipping. Farmers are not locked into a single fuel input at a fixed usage rate. They can, and do, adjust practices to manage cost pressure.

How are farmers equipped to handle higher input costs?

Farmers have long operated in cyclical, uncertain environments and are experienced at navigating periods of changing costs and pricing conditions. Rising input prices are not unusual in agriculture, and producers generally respond by reassessing spending decisions, prioritizing the most productive uses of capital, and managing operations more conservatively when needed.Farmers specifically have several tools at their disposal in this regard:

• Crop mix and rotation decisions: Row crop farmers can shift acreage toward crops with more favorable economics or stronger pricing momentum.
• Pre-purchasing and planning: Many operators lock in fertilizer purchases well ahead of peak demand seasons, blunting the impact of sudden price spikes.
• Weather offset potential: While not guaranteed, strong yields in favorable weather years can substantially offset higher per-acre costs.

These options mean farmers are not passive recipients of cost shocks, and the system has multiple shock absorbers before financial stress would translate into distressed farmland sales.

How is your investment strategy designed to help insulate farmland investors from input price volatility?

Our portfolio is comprised of leased farmland, which is a key differentiator during periods of short-term volatility. Under lease arrangements:

• Operating risk remains primarily with the tenant farmer, not the landowner.
• Rents, whether fixed cash rents or those that participate in gross revenue, are based on the farm's top line revenue and are not netted against input costs such as fuel or fertilizer.
• As rents adjust over time, they tend to reflect longer-term commodity and income trends rather than short-lived shocks.

As a result, leased farmland has historically demonstrated strong income stability, even when farmers experience temporary margin compression. This structural separation between operating costs and land ownership significantly helps to insulate capital values during periods like the current one.

Won't higher costs ultimately reduce farm profits and weaken demand for land?

Over time, agriculture has a well-documented tendency for commodity prices to adjust in response to sustained changes in input costs. Food is a necessity, not a discretionary purchase, and demand destruction is limited compared with other sectors. Consumers may alter consumption patterns or substitute between products, but they still need to eat.

As input costs rise across the system, commodity prices tend to move higher as well, allowing costs to be passed through the supply chain. This adjustment may not be immediate, but it has repeatedly occurred over long periods. Farmers may experience margin volatility during the adjustment period, but the burden is ultimately shared with downstream buyers and consumers, rather than borne entirely by producers. From a landowner perspective, this dynamic supports the long-term income-producing capacity of farmland.

What does historical experience tell us about farmland investing during high energy price periods?

Historical precedent provides helpful context. Periods such as 2008 and 2022, both associated with elevated energy prices and broader inflationary pressures, also coincided with strong farmland returns. While those outcomes were influenced by multiple factors, higher energy prices did not prevent farmland from performing well.

These episodes reinforce the idea that farmland can be resilient in inflationary environments. Over time, income growth, asset scarcity and essential-demand characteristics have tended to outweigh short-term input volatility.

How do interest rates factor into our outlook for farmland values?

Higher energy prices can contribute to inflation expectations, which may increase interest rate volatility and place some short-term pressure on valuations. That said, farmland values are not driven solely by capitalization rates. Long-term income durability, global food demand, and farmland's role as a real asset remain critical value drivers. In inflationary environments, these characteristics have historically supported farmland as an attractive component of diversified portfolios. Our portfolio construction emphasizes asset quality, tenant strength and geographic diversity, which can help mitigate interest-rate sensitivity.

Bottom line: how should investors think about farmland in this environment?

The key takeaway is that farmers are equipped to manage higher energy and fertilizer costs, and farmland investors - especially those investing through leased structures - may be even better insulated than strategies that expose investors to direct farming risks via direct operation, as is typical on permanent plantings in the US.

• Farmers have tools and experience to navigate cost pressure.
• Commodity prices tend to rise over time to reflect higher input costs.
• Leased farmland separates operating volatility from land ownership.
• Historical precedent supports farmland resilience in similar environments.

In our view, the current environment represents short-term headwinds, not a structural risk to farmland values or long-term capital returns. For investors with a long-term horizon, we believe leased farmland continues to offer income stability, inflation protection and diversification benefits that remain attractive amid macro uncertainty.

Farmland sector performance outlook¹

Source: UBS Asset Management, Global Real Assets (GRA), May 2026. Assessment informs top-down perspectives as well as bottom-up strategy and manager selection. GRA will weigh the perceived relative attractiveness of these strategies using a scale of "underweight", "neutral weight" and "overweight" ratings. These ratings are the opinion of GRA and may not necessarily provide an accurate reflection of the ultimate success or potential return of a given strategy. Past / expected performance is not a guarantee for future results.