Table of Contents

• How Farmland Investments Work

• The Four Models of Farmland Investing

• Farmland Has Surprisingly Strong Performance

• Where To Invest in Farmland

If you’re looking for alternative investments with high return potential, real estate is by far one of the most compelling areas to explore.

Why? Because there are so many niche categories within real estate that are poorly understood and, as a result, underdeveloped. 

A few weeks ago, I dove into one of those niche categories by exploring cold storage, which turned out to be one of the most popular issues of NOYACK Wealth Weekly ever.

Along the way, I asked what you wanted to see next – and one clear winner emerged: farmland.

In an investment world featuring digital assets, artificial intelligence, and hot new tech startups, farmland might seem a bit old-fashioned.

But as long as people need to eat, growing crops will never go out of fashion. 

Plus, increased demand for asset-light, tech-first business models has arguably made farmland assets more attractive, since there’s less investor competition. 

Today, I’m going to dive into farmland investing, taking a look at:

• How farmland investments actually work,

• The historical performance of farmland investing,

• And practical ways to invest in farmland today.

How Farmland Investments Work

Like other forms of real estate investing, farmland assets can generate returns in two distinct ways: 

• Capital appreciation (the price of the underlying property rising),

• And income generation (cash generated by the property).

For the vast majority of real estate assets, income generation occurs through rents and leases paid by tenants.

But farmland is special. Yes, you can rent the land out to a farmer – but you can also generate income directly by participating in the underlying farming operation.

The Four Models of Farmland Investing

The idea that you can generate income from farmland in two different ways opens up the possibility of flexible investment models.

In order of increasing risk (and also increasing potential reward), these include: 

1. Fixed rate lease. Income determined by the negotiated lease to the farmer.

2. Fixed + variable lease. Base rent (fixed) plus income participation based on price or yield (variable).

3. Revenue share lease. All income determined by revenue of crops.

4. Joint venture with farmer. All income determined solely by crop profitability.

If you just want to earn a predictable stream of income and benefit from some capital appreciation, a fixed rate lease might be a good fit.

But you’ve found an operational partner you believe in, you might be willing to go in on a joint venture.

Your choice will also be influenced by the type of crop being planted.

• Row crops, which include wheat, corn, and rice, have a fairly short life cycle, being planted and harvested in the span of a single year.

• Permanent crops, though, like almonds and apples, take much longer time to reach maturity and start yielding produce – although these long-term investments also tend to have higher profitability.

Despite being planted in rows, wine grapes in vineyards (pictured) are also a permanent crop (I know, it gets confusing…).

Farmland Has Surprisingly Strong Performance

Despite flying under the radar for most people, farmland investing has been a popular choice for the wealthy and sophisticated. 

Bill Gates, for instance, is now the largest landowner in the U.S. after racking up about 270,000 acres of domestic farmland. 

In fact, he’s just one of many billionaires to make large-scale land purchases in the past few years.

While you can cook up some intriguing conspiracy theories about these purchases, the fact is, they’re entirely justifiable on an investment basis alone.

Over the past few decades, farmland has managed to outperform the stock market, buffeted by strong government support and rising crop yields.

Since 2013, the NCREIF Farmland Index (which accounts for both income and appreciation) has returned about 7.3% annually.

What’s more, farmland has generated these returns with a relatively low annualized volatility of just 2.9% (although this is likely understated due to the low liquidity of the underlying asset).

Finally, farmland has the benefit of being largely uncorrelated to broader markets. That can make this asset class a strong portfolio diversifier.

Where To Invest in Farmland

There are no guarantees that farmland’s strong performance is here to stay.

Climate change is dramatically altering the agricultural industry as a whole and modern techniques like vertical farming could play a role in undercutting traditional farms.

But despite these risks, farmland could be a compelling option as part of the alts allocation in your portfolio.

Here are a few different farmland investing options worth considering…

Note: I’m not necessarily recommending any of these – do your own research before investing money in any of these options. 

• Farmland Partners is a publicly listed REIT (NYSE:FPI) managing about 180K acres of farmland.

• Gladstone Land is a publicly listed REIT (Nasdaq:LAND) managing about 112K acres of farmland.

• AcreTrader is an online platform offering the opportunity to invest in individual farmland offerings.

• FarmTogether is an online platform with a mix of offerings ranging from individual farmland plots to funds.

• Harvest Returns is an online platform that offers investment opportunities in farmland as well as specialty agriculture areas like livestock and aquaculture.  

📺 WHAT WE'RE WATCHING

This video from CNBC explores why the wealthy are buying up farmland across the country. It also looks at the tricky questions of economics and fairness that arise when rich non-farmers start accumulating land from relatively poorer farmers.

CNBC: Why Bill Gates is Buying Up U.S. Farmland

👂 WHAT WE’RE LISTENING TO

This episode from the podcast Making Markets features an interview with the CEO of a farmland investing company. The discussion involves a look at the merits of farmland as an asset class and the different possible models of investment.

Making Markets: Investing in Farmland

📖 WHAT WE’RE READING

This brief primer from investment consulting firm Verus Investments offers more context around farmland investing as well as the closely related area of timberland investing. The author looks at the “hard” (performance-based) and “soft” (ESG and values-based) reasons for investing. 

Verus: A primer: Timberland & farmland

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