With inflation at its highest levels since the 1980s, investors are relentlessly searching for high-quality safe-haven investments. While real estate has long been a tried and true store of value (think Ken Griffin’s New York penthouse), recently, many of the wealthiest investors have been turning to a market segment that is making headlines: farmland.
Why are billionaires buying up farmland?
The single largest owner of farmland in the US is Bill Gates, with over 275,000 acres that he has acquired over a decade. Ted Turner is the largest landowner in Nebraska, a major landowner in several other states, and the owner of the largest private herd of buffalo in the world. Warren Buffet has repeatedly touted the benefits of farmland, saying that it’s an investment with “no downside and potentially substantial upside.” Even professional athletes like Blake Griffin of the Boston Celtics and Joe Burrow of the Cincinnati Bengals are buying up farmland.
These millionaires and billionaires have realized that farmland is a one-of-a-kind safe haven investment that has historically held its value through turbulent markets, performed well during times of high inflation, and delivered strong, uncorrelated returns. After all, farmland’s value is underpinned by its fundamental role in the global economy: the world’s growing population needs to eat. And as the supply of high-quality farmland decreases each year, the long-term outlook for farmland becomes even more attractive.
In the US alone, farmland represents a $2.9 trillion market of untapped value for investors. Read on to learn more about why sophisticated investors are tapping into this newly accessible real estate investment.
Farmland investing may seem exotic, but in many ways, it is very similar to residential and commercial real estate. Like real estate, farmland owners can benefit from two revenue streams: income via rental payments from farmers and sales from farming operations, and a lump sum payment when the property is sold.
Over 40% of farmland in the US is rented, and collecting rent payments from farmers is similar to collecting rent from any other tenant. Depending on the management structure, rental prices are either fixed or structured with a variable component linked to crop prices. This allows the landowner to share the benefits in an up year, but might also lead to losses in years where crops underperform. When it comes to appreciation, farmland has historically seen durable valuations, driven by its stable supply-demand fundamentals. In the past year alone, US cropland values are up 14%, reaching a record $5,050 per acre.
Since 1992, farmland delivered average annual returns of 10.7%, outperforming not only commercial real estate, where returns averaged 8.4%, but also the S&P 500, which returned 9.58%.
Like commercial and residential real estate, farmland can be segmented into sub-sectors, with opportunities available along the risk-reward spectrum. Annual crops, including grains like corn or soybeans, are planted and harvested yearly, giving farmers the flexibility to adapt to market trends from year to year. Thus, annual crops tend to be less risky for investors.
In contrast, permanent crops, such as tree nuts or wine grapes, may take several years to mature but can have economic lives of 20 years or more. Because of this longer investment horizon, permanent crops tend to offer a better risk/reward profile.
Like any other real estate investment, location is a key driver of value. California, for example, is an agricultural powerhouse producing around 14% of the total value of farm products in the country across over 400 agricultural commodities, including high-value crops like almonds, citrus, and stone fruit. The state has some of the most valuable cropland in the country, with average prices per acre over $15,000, an increase of 11% from 2021. Meanwhile, land prices across the Corn Belt reached historically high levels throughout 2022, and the trend has continued through the post-harvest fall selling season into 2023.
Farmland: Historically low-volatility, high-reward
While farmland has historically offered many of the same perks as traditional real estate investments, farmland has other benefits that make it increasingly appealing to investors. First, farmland returns have been significantly less volatile than most traditional and alternative investments. For example, in the thirty years between 1992 and 2022, the NCREIF Farmland Index had a standard deviation of 6.6%, which is significantly lower than the volatility of the S&P 500 (17.4%) and the volatility of commercial real estate (7.6%).
Farmland returns have also been largely uncorrelated with most other asset classes and broader market indices. In fact, in the same 30-year span, farmland negatively correlated with stocks, bonds, and publicly-traded REITs. Meanwhile, the performance of farmland is positively correlated with inflation, making it an attractive store of value in an inflationary environment.
Adding farmland to a portfolio, then, can help reduce overall volatility and make it more resistant to market-wide economic shocks. Unlike commercial real estate, farmland experienced stable returns during the Great Financial Crisis and the Covid-19 pandemic. Last year, farmland yielded returns of nearly 10%, outperforming commercial real estate by more than 4%.
Finally, farmland is an asset class supported by strong market fundamentals. The overall supply of farmland in the US is declining yearly, forcing farmers to feed a growing population with less arable land. Regardless of inflation or the economy, people need to eat. These factors point to farmland being a compelling real estate investment opportunity looking forward.
An Untapped Market
Despite the multiple benefits of farmland, accessing this asset class has been difficult for individual investors. Farmland ownership is extremely fragmented, with the vast majority of farmland owned by small-family farmers. Additionally, sourcing and purchasing deals require specialized knowledge, strong industry relationships, and specialized asset management capabilities, which has kept many out of the market.
This scenario is changing, thanks to FarmTogether, a farmland investment manager focused on providing wide-scale accessibility to institutional-quality farmland. Demonstrated by more than $1.2 billion of deployed capital, their team of institutionally experienced asset managers has the skill set necessary to identify high-quality deals, manage them effectively and provide a seamless, digital investment platform for investors.
FarmTogether’s investment process is rigorous and selective. Their team employs a comprehensive due diligence checklist with over 105 criteria to ensure that no stone is left unturned. They target some of the highest-quality farmland regions in the United States, including California and the Corn Belt, only offering the most attractive opportunities to investors; less than 1% of the transactions screened by the FarmTogether team are brought to investors.
FarmTogether continues to deliver benefits for investors post-acquisition as well. They are incredibly selective when partnering with farm operators and extensively vet their financials, track record, and long-standing reputation. They are also a member of Leading Harvest, an innovative nonprofit organization and industry leader in sustainability, which was created by and for all stakeholders across the agricultural value chain. All of FarmTogether’s agricultural operations have been certified as in conformance with the Leading Harvest Farmland Management Standard, benefitting both the performance of their farms and the environment.
FarmTogether offers multiple investment solutions to fit various investor needs, whether individuals or family offices. They offer bespoke investment solutions for those interested in an individually-owned, more tailored farmland investment. This channel enables investors to take a more custom approach to their farmland exposure. Their investment team works closely with investors to understand your desired criteria, including risk appetite, hold period, and optimal cash flow profile. With these in mind, they are able to provide a selection of tailored investments that can best fit investors’ overall goals. Their investment professionals lead the due diligence process and then manage the investment post-transaction, giving you personalized, hands-off access to high-quality, investment-grade farmland.
For those seeking more diversified farmland exposure, investors can participate in their Sustainable Farmland Fund. With a single allocation, you can have access to a diversified portfolio of institutional-grade farmland investments. The fund targets acquisitions across different geographies and a diversified set of commodities, including citrus, tree fruits, tree nuts, and row crops.
Finally, for those investors who are interested in marking a smaller initial commitment, we offer fractional ownership in farmland through FarmTogether’s Crowdfunded product. Investors benefit from the same experienced investment team, rigorous diligence process, and best-in-class asset monitoring tools for a minimum investment as low as $15,000.
Finally, investors are able to access farmland on a tax-advantaged basis. Several of their offerings can be accessed using a 1031 exchange, allowing investors to take a tax-efficient approach to grow and diversify their existing real estate portfolio.
Farmland: an untapped real estate opportunity
Investing in farmland provides a unique opportunity to access an untapped, lucrative real estate investment: farmland has historically offered passive income, strong appreciation, low volatility, and strong performance throughout economic cycles. Interested in investing? For more information, sign up with us today.
This communication is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation, or needs of any investor. All investors should consider such factors and risks in consultation with a professional advisor of their choosing when deciding if an investment is appropriate. Historical data is not indicative of future results and may not reflect fees which may reduce actual returns. Any historical information is illustrative in nature and may not represent future results, therefore any investor investing through the FarmTogether platform may experience different returns from the examples and projections provided herein.
Data representative from January 1992 through December 2022. Sources: Privately Held U.S. Farmland – NCREIF Farmland Index; Privately Held U.S. Commercial Real Estate – NCREIF Real Estate Index; Stocks – S&P 500; Bonds – Bloomberg Barclays U.S. Aggregate Index; Gold – Federal Reserve Bank of St. Louis Economic Data (FRED). Indexes are unmanaged and not available for direct investment.