One of the best-performing asset classes this year has been farmland. Here is what the biggest farmland REIT, Farmland Partners (FPI), noted on their recent conference call:
Land appreciation has been extremely strong over the past 9 months and was even stronger in 2021. We think, in 2023, the rate of appreciation may slow but it will continue to be a strong year for farmland values.
Nationwide, farm real estate values went up 12.4% in the last year, 20.3% in the last 2 years. So these are -- just a couple of reminders, these stats are really for all types of farm real estate so all quality tiers. And our anecdotal evidence that we see in the marketplace is that perhaps the upper tiers of farmland values and quality are actually appreciating even at that faster than that.
Talk about a safe haven!
Farmland is up 12.4% over the past year, and that's just the average, which includes the bad, the average, and the good farmland. The highest quality farmland is actually up closer to 15-20% over the past year.
That's very impressive when you consider all the uncertainty that we are dealing with:
Inflation is high
Interest rates are surging
We are nearing a recession
The pandemic still isn't over
And we are close to a third world war
And it is even more impressive when you compare this performance to that of the rest of the market. The S&P500 (SPY) is down 20%... REITs (VNQ) are down 27%... Tech stocks (QQQ) are down 31%... And not even the traditional safe havens like Gold (GLD) or Utilities (XLU) were able to provide any meaningful real return:
So farmland investors are looking pretty good right now. They have outperformed the S&P500 by 30-40% in 2022 alone.
I was surprised to learn that a lot of the world's richest and most successful investors hold significant investments in farmland. This includes Warren Buffett, Bill Gates, and even Michael Burry of "the big short" movie.
After making a fortune shorting the housing market in 2008, Michael Burry explained in an interview that the little investing that he does today is mainly focused on farmland, which represents a large portion of his net worth.
Bill Gates, the co-founder of Microsoft (MSFT), has also made some significant investments in farmland in recent years and even became the largest private owner of farmland in the US.
And then, of course, there is also Warren Buffett, founder of Berkshire Hathaway (BRK.B) and arguably the best investor of all time, who has repeatedly touted the benefits of farmland investing, and often used it as an example of a great investment when comparing it to things like gold and Bitcoin (BTC-USD).
But why are they buying farmland even as most of the rest of the world remains under-allocated to it?
I think that there are 3 main reasons to invest in farmland today:
We live in a very uncertain world right now and there is nothing better than farmland to protect you from black swans.
Farmland values remained stable even despite the dot-com crash of 2000, the great financial crisis of 2008, the pandemic in 2020, and the crash of 2022:
Farmland is so incredibly resilient because of a simple reason: people need to eat. It provides the most vital of commodities: food. Whether the economy is booming or collapsing, people need to eat. Moreover, the population is growing rapidly, particularly in Africa, and the world is expected to hit nearly 10 billion people by 2050. Meanwhile, the supply of farmland is slowly declining due to better-use conversions and global warming in some cases.
Naturally, this causes the value of farmland to rise, even despite occasional crises.
In some cases, crises may even benefit farmland. As an example, Russia's invasion of Ukraine increased the value of farmland in the US because suddenly, the supply of vital commodities was heavily disrupted and US farmland became even more important to feed the rest of the world.
Reason #2: Inflation Protection
Farmland is not just an insurance against black swans, it is also a great hedge against inflation, which is particularly important today.
We can print more money, but we cannot print more farmland or replace it with anything else. Farmland is a particularly good inflation hedge because food prices quickly adjust to higher inflation and it then results in higher profits for farmers and higher rents/property values for land owners.
Farmland Partners is currently hiking its rents by 15% across its entire portfolio. This explains why farmland has gained so much value in 2022 and also why they expect farmland to keep appreciating at 5-6% per year in the long run, which is roughly in line with historic averages:
Inflation is a particularly strong catalyst for farmland because you can leverage it with a mortgage.
The mortgage is getting inflated away even as your land gains in value, resulting in exponential gains on your equity.
Reason #3: Real Diversification Without Sacrificing On Returns
Today, the markets are increasingly correlated and it has become very difficult to meaningfully lower the risk of a portfolio through diversification.
This year as an example, bonds failed to protect investors and dropped nearly as much as stocks, resulting in some of the worst returns ever for a traditional 60/40 portfolio:
Similarly, REITs dropped even more than stocks, despite historically having been a lot more resilient to recessions and rising interest rates.
But farmland still provides real diversification benefits, and best of all, investors don't have to sacrifice long-term returns to lower the risk of their portfolio.
Historically, farmland has actually outperformed stocks, bonds, gold, and real estate, generating 10.5% average annual returns since 1992.
So to recap:
#1: Farmland is a form of insurance for black swans.
#2: Farmland greatly benefits from inflation.
#3: Farmland provides real diversification benefits and strong returns.
It may then seem like a no-brainer for all of us to include at least some in our portfolio, and yet, most don't do it.
This is largely because until recently, it was almost impossible for an individual investor to invest in farmland.
You would have needed to have $10s of millions to build a well-diversified portfolio by geography and crop type, which is important to mitigate risks like the weather.
But recently, some new alternative investments have opened the doors to individual investors.
The two main options are publicly listed REITs and crowdfunding platforms.
I use both and they each have pros and cons.
REITs can be attractive because they allow you to buy an interest in a well-diversified portfolio that's liquid and professionally managed. The downsides are that REITs can be quite volatile and there are today only 2 publicly listed farmland REITs in the US, Farmland Partners and Gladstone Land (LAND), and they each present some issues that may make them uninvestable to some investors.
LAND is priced at a premium to its net asset value, which essentially means that you are overpaying for its assets, and the company is externally managed, which can lead to some conflicts of interest.
FPI is discounted and we are bullish on it, but it is not a pure-play farmland investment since it also has brokerage, auctioning, and asset management businesses.
This brings us to the other option, which is crowdfunding. There are today a few platforms that allow you to invest as little as $15,000 in farmland investments and they then manage them for you. It is very easy to create an account and start building a diversified portfolio of farmland.
My favorite platform is FarmTogether, but note that I am somewhat conflicted because I am also an angel investor in the company. They are currently offering a deal with a 6.1% yield and a 12% targeted IRR for pecan farmland:
This is probably the closest thing to farmland investments that you could make as an individual investor. It is not volatile like a REIT, it provides real diversification benefits, and it pays significant income.
But here also, there are some downsides. The biggest one is illiquidity. As you can see above, this deal, like most others, has a 10+ year-long term. That is fine if you are long-term-oriented, but it also means that you may not be able to get out before that. So it is not for everyone, but it can nicely complement a stock and bond portfolio if you are long-term oriented.
Bottom Line
Billionaire investors are buying farmland and you probably should too.
It is a form of insurance against black swans, it is also an inflation-hedge and it provides meaningful diversification benefits without sacrificing on returns.
I invest in farmland via Farmland Partners (REIT) and FarmTogether (Crowdfunding).
High Yield Landlord, #1 Service for Real Estate Investors and Retirees
High Yield Landlord recently broke the 2500-member mark! Our prices will increase soon but all members who sign up now are grandfathered for life at today's discounted rate!
If you are still sitting on the sidelines… now is your time to act. Start your 2-week free trial TODAY and lock in this discounted rate before we hike it!
Want A 50% Discount?
Start Your Free Trial Today
We have over 500 five-star reviews from members who are already profiting from our 8% yielding portfolio.
Currently, investors are attracted to farmland due to its low correlation with the stock market's volatility. This makes it an exceptional tool for diversifying portfolios. Farmers have pricing power for their crops. Food is not a discretionary item on any budget.
In the aftermath of the great financial crisis, Burry did a lot of interviews and he said the following in one of them: "I believe that Agriculture land with water on site will be very valuable in the future and I've put a good amount of money into that.So I am investing in alternative investments."
Buying farmland, waiting for the value to appreciate, and then selling it is the most basic form of farmland investing. It's simple: land values rise, and the land produces crops, which provides you with income. The higher the income, the more valuable the farmland.
A farmland conversion has the potential to produce the highest return since an investor would likely be able to purchase land for a lower price and, therefore, could earn a higher cash yield and potentially benefit from higher land value appreciation.
“If you said for a 1% interest in all the farmland in the United States, pay our group $25 billion, I'll write you a check this afternoon,” Buffett said. “[For] $25 billion I now own 1% of the farmland.
People own most farmland. Some 2.6 million owners are individuals or families, and they own more than two thirds of all farm acreage. Fewer than 32,500 non family held corpor ations own farmland, and they own less than 5 percent of all U.S. farmland.
Now, one can consider farmland simply as an alternative investment. Farmland produces returns both with rent yields and appreciation in the farmland's value. So these investments can work somewhat like dividend stocks, with gains from income and capital gains.
Michael Burry, a successful American investor, has a net worth estimated at $300 million. Leaving behind a career in medicine, he gained considerable wealth from his hedge fund, Scion Capital, by shorting tech stocks and accurately predicting the 2008 housing market crash, which earned him millions.
Some of the world's biggest billionaires are landowners, such as media mogul Ted Turner who owns 2 million acres, Amazon.com's AMZN, -0.66% CEO Jeff Bezos who has amassed 420,000 acres and Microsoft MSFT, +0.47% co-founder Bill Gates's 270,000 acres, he notes.
The best states for farmland include Montana, Kansas, Oklahoma, South Dakota, North Dakota, Texas, Iowa, Kentucky, Wyoming, and California. Consider factors like profitability, cost of operation, infrastructure, and availability when selecting a location.
Farmland can serve as a cornerstone of a balanced investment portfolio. Commodity prices, including the cost of food, tend to rise with inflation. This strong correlation allows agricultural investing to protect against inflation, especially compared to high-volatility assets.
Dairy Farming: Dairy farming is one of the most profitable agricultural business ideas. Aside from milk, it also produces manure. There is a high demand for organic dairy products all year round such as milk, cheese, curd, cream and so much more.
Livestock is probably the most common way farmers make money from their land. And while animals have a few more expenses and a higher overhead, they usually bring in top dollar in terms of net income.
Altogether, investments in American farmland have returned about 11% per year, on average, for the last four decades. That's comparable with the long-term returns of the stock market.
Is farmland a good investment? Farmland investments are often compared to other types of real estate investments, such as residential or commercial properties, and the answer is a resounding yes.
Of the 1.3 billion acres of private agricultural land in the United States, foreign entities fully or partially owned roughly 40 million acres valued at $74 billion in 2021.
While many agricultural support programs are meant to “save the family farm,” the largest beneficiaries of agricultural subsidies are the richest landowners with the largest farms who, like Bill Gates and Warren Buffet, are scarcely in any need of taxpayer handouts.
It is recognized as the agricultural powerhouse of the United States. California's crops account for around 73% of the state's agricultural revenue, with livestock commodities accounting for the remaining 27%, allowing it to surpass all other states in terms of farm income.
The United States had 895.3 million acres of land in farms in 2021. The United States had 895.3 million acres of land in farms in 2021. Texas had the most land in farms in the United States in 2021 followed by Montana and Kansas. Texas accounted for more than 14% of the land in farms in the United States in 2021.
In a study of USDA reports, Pew found the foreign country that owns the most U.S. land is not China or Russia, but rather, our neighbors north: Canada. Investors from the Great White North, according to the USDA, own about 12.8 million acres of U.S. land, most of it forest land.
While owning farmland can be a very profitable venture over the long-term, farmland will typically never cash flow when purchased with substantial borrowed capital.
This means that farmland has been relatively immune to the effects of economic downturns over the long term and has historically outperformed other asset classes during periods of uncertainty.
If you're looking for a long-term investment, real estate may be the better option. There are no guarantees, but real estate tends to appreciate in value over time. If you're looking for a more passive investment, stocks may be the way to go.
His previous Securities and Exchange Commission (SEC) filing revealed he only held one share – private prison operator GEO Group. Burry's latest SEC filing for Scion Asset Management showed that he bought seven new stocks and reduced his holdings in GEO Group and Qurate Retail.
After shutting down his website in November 2000, Burry started the hedge fund Scion Capital, funded by an inheritance and loans from his family. He named it after Terry Brooks' The Scions of Shannara (1990), one of his favorite novels. He quickly earned extraordinary profits for his investors.
He believes that the crypto industry is paying for its rejection of people who even slightly question the viability of projects and products. He warns that the crypto industry does not support or tolerate contradiction.
Burry stated that throughout history, including the dot-com bubble in 2000, the 2008 housing crisis, and now in 2023, individuals with inflated egos and a desire for profit have taken foolish risks, leading to failure.
He prefers water-rich farmland away from large governmental and infrastructural limitations. Burry has said in interview: “What became clear to me is that food is the way to invest in water. That is, grow food in water-rich areas and transport it for sale in water-poor areas.
The largest agricultural landowner is the Chinese dairy farm 'Mudanjiang City Mega Farm', which is owned by Russian and Chinese owners. More than 9 million hectares belong to the company.
King Ranch, largest ranch in the United States, composed of a group of four tracts of land in southeastern Texas, totaling approximately 825,000 acres (333,800 hectares). The King Ranch was established by Richard King, a steamboat captain born in 1825 in Orange county, New York.
Investing in agricultural land can be a great opportunity to capitalize on the current market, with some states offering highly affordable farmland. North Dakota and Wyoming are two of the most cost-effective states for farming land, followed by Alabama and Kentucky.
Texas had the most farms in the United States in 2021 followed by Missouri and Iowa. Texas accounted for roughly 12% of the farms in the United States in 2021. Thirty nine (39) states had 12,000 or more farms in 2021.
Mollisols found in the Midwestern U.S. are the best for agriculture due to the grasslands that were present thousands of years ago. These prairies produced strong and fertile soils because after each year, the grasses would breakdown and contribute nutrients to the ground.
Living on a farm means you have more maintenance than a standard home. For starters, you own more land, meaning you have to look after all of it. Then, consider if you have animals or crops to tend to – both require constant care and attention.
Beef cattle are considered the most profitable livestock and easiest to raise for profit, but homesteaders with small acreage won't be able to raise cattle. Cattle, whether you want beef or dairy cattle, require plenty of good-quality pasture, supplemental hay, fresh water, room to roam, and veterinarian care.
Chickens are generally a low-cost farm animal; the feed is cheap, and they love to eat all of your scraps. It only takes a few minutes per day to take care of chickens. You have to feed and water them, and you will need to make sure they're protected at night.
While it seems like farmlands are a prime source of instability due to their sensitivity to climate change, the opposite is true. Farmlands are actually quite resistant to recession.
A land values map released by the U.S. Department of Agriculture's National Agricultural Statistics Service in August 2022 shows national average farm real estate values per acre steadily rising since 2009, to $3,800 per acre in mid-2022.
American billionaires are buying large ranches across Wyoming, Montana and Texas, creating a new class of luxury assets, writes Bloomberg. Why it matters: The wealthy are often buying the land from "asset-rich, cash poor" small farmers whose families have owned the land for decades.
Supply and demand. Land values follow the laws of supply and demand. A shortage of available land in a region (low supply) and many farmers interested in buying land (high demand) are factors contributing to higher prices.
The best states for farmland in the US include Montana, Kansas, Oklahoma, South Dakota, North Dakota, Texas, Iowa, Kentucky, Wyoming, and California. Consider factors like profitability, cost of operation, infrastructure, and availability when selecting a location.
High net worth investors typically keep millions of dollars or even tens of millions in cash in their bank accounts to cover bills and unexpected expenses. Their balances are often way above the $250,000 FDIC insured limit.
The 2022 Land Report 100, compiled each year by The Land Report magazine, released its annual list of landowners who own the most acres in the United States. The nation's largest private landowners are the Emmerson family in California who own over 2.4 million acres.
Corn Ranch, or Launch Site One, is a spaceport in the West Texas town of Van Horn, Texas. The 670-square-kilometer (165,000-acre) land parcel was purchased by Internet billionaire Jeff Bezos.
Even though land values are affected by inflation, other things affect land values such as recreational use, development, and natural resource exploration. A combination of inflation and these other affects can greatly affect land prices.
Address: Suite 447 3463 Marybelle Circles, New Marlin, AL 20765
Phone: +5816749283868
Job: Sales Executive
Hobby: Air sports, Sand art, Electronics, LARPing, Baseball, Book restoration, Puzzles
Introduction: My name is Jerrold Considine, I am a combative, cheerful, encouraging, happy, enthusiastic, funny, kind person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.
