How much can you earn investing in farmland and what are the risks? What are the ways to invest in farmland?
Topics covered include:
- What determines farmland investment returns
- How much has U.S. farmland appreciated historically
- How much income does farmland investing generate
- Why the amount of U.S. farmland is shrinking
- Has another commodity supercycle started
- Why U.S. farmers are dependent on exports
- What are farmland investing risks
- What farmland investment vehicles are available
- How to evaluate a farmland investment opportunity
Welcome to Money For the Rest of Us. This is a personal finance show on money, how it works, how to invest it and how to live without worrying about it. I’m your host, David Stein. Today’s episode, 334. It’s titled “Should you invest in farmland?”
Selling the Farm
About ten years ago LaPriel and I bought an 80-acre farm in Teton Valley. It was a beautiful location. I had mentioned this farm in the past on the podcast, as well as in my book. Some of the challenges that we’ve had with it, particularly the gravel pit that sprung up across the street. I sold half the farm, all the outbuildings, the pastures, the house, in 2016, I broke even, and then kept 40 acres, which we’ve held for the past five years.
I make a little bit of income on it—not much; about $15/acre to lease it to a local farmer that I know, that first had planted barley on it, and then in the last several years has planted hay. My yield’s about 0.5%. I like owning this piece of land because I don’t have to do anything. The taxes are low, the farmer farms it. Yeah, I don’t make much money off of it, but the idea was to eventually sell it as property prices grow up; not because farm income is going up, because typically farmland goes up in value if farm income is going up. But in this valley, that overlooks the Teton mountain range, there have been a lot of people wanting to buy property there in the last year, as the pandemic hit. And there’s a shortage of supply.
I got a call last week that the owner that bought our farm—and I’ve been carrying the note on it—is ready to sell and wanted to know if I wanted to list our property for sale. I said “Sure.” Because prices have doubled from my cost in this particular piece of ground.
Now, that’s just one way to go about farmland investing. You could call it a higher and better use way. The true value is in the speculative land prices not from farmers, but from others that want to move to a beautiful valley.
There are other ways to invest in farmland. There are farmland real estate investment trusts, and I’ll talk about one that I have owned and recently sold, at least the common stock shares. Something that has happened in the last 4–5 years are crowdfunding farmland investing platforms, such as AcreTrader and FarmTogether.
What Farmland Investing Platforms Say
These platforms give individual investors the opportunity to participate in farmland investing, own a percentage of an LLC that in turn owns an operating farm. I was intrigued by a number of statements on AcreTrader’s website and FarmTogether about farmland investing. Here’s what AcreTrader says:
“With a growing global population and shrinking U.S. farmland acreage, the laws of supply and demand are clearly in favor of farmland investing. As a result, farmland has consistently beat other asset classes over time.”
Here’s what it says on FarmTogether’s website:
“The increasing scarcity of farmland and its lack of correlation with other asset classes makes it an exceptionally strong diversification tool for virtually any portfolio. This has driven institutions to significantly increase their investments in farmland over the last 30 years.”
Is farmland scarce in the U.S.? And if so, why? And does that mean demand for agricultural products will exceed supply, pushing up the value of farm income and prices? Here’s what AcreTrader says:
“Perhaps more impressive is the consistency of farmland returns over time. Where the value of gold or stock markets can go down over 40% or 50% in a single year, farmland returns have been positive every year since 1990, the first year of the index.”
“Farmland has low volatility as compared to most other asset classes. It provides stability for investors, especially during adverse market conditions. The NCREIF farmland index hasn’t had a negative year since 1991.”
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