Investing in Farmland; The New Frontier.
Country artist Jordan Davis shares advice for “making a dollar count” and “living a good life” before time runs out in his newly released single—”Buy Dirt.” As the title suggests, “buy dirt” tops the list. The song stirs sentimental feelings as it is written from the perspective of an 80-year-old sharing wisdom on designing a fulfilling life. Beyond the feel-good nature of the lyrics lies savvy financial advice—experts view investing in farmland as a stable venture.
Investors are increasingly turning to farmland as an asset class as new investment formats emerge. The United States Department of Agriculture (USDA) estimates that American farmland totals nearly 911 million acres. As a result, opportunities abound, and adding farmland to an investment portfolio is more accessible than ever.
Here’s what you need to know to get started.
There’s No Better Time Than Now to Invest in Farmland
Real estate investing has traditionally been a standard option for diversifying an investment portfolio. However, investing in farmland has become increasingly popular for two reasons.
One is basic supply and demand: a growing global population and available farmland acreage declines as commercial and residential developments gobble up space. According to Food and Agriculture Organization estimates, the global population is projected to swell to 9.3 million people by 2050. Regardless of economic swings, all those people must eat, whether it is booming or receding.
The other is consistency. Farmland investments experience low volatility because of their lack of correlation with other asset classes. As a result, higher average annual returns compared to traditional portfolios have been reported.
Three Farmland Investment Options to Grow Your Portfolio.
The most direct way to get involved is to purchase a parcel of farmland. The value of farmland has steadily increased by 4.4% over the last two decades. And, the price per acre is up 20% in 2022. While the long-term average return on land can pay dividends, purchasing land directly requires a costly upfront investment.
In June 2022, Farmers National Company reported that land prices paid per acre in the corn belt have exceeded $20,000 per acre in Iowa and are between $12,000 and $15,000 in the Dakotas. That’s a hefty sum to get started.
Plus, you’ll need to manage leases unless you plan to plant row crops, raise livestock or convert land not currently in production. Those agreements may range from a sale-leaseback with the seller or finding a new tenant.
Buy into Farmland REITs
If you’re looking for a farmland investment opportunity but are uninterested in directly owning the land, buying into a publicly traded real estate investment trust (REITS) may be the option for you.
Investors who chose farmland REITs have an advantage over owning the land outright—since shares are purchased, they can be quickly sold on the stock market, increasing an investor’s liquidity. The shares are invested in the stock market and are exposed to market risk. Farmland Partners and Gladstone Land Corporation are the two publicly traded REITs specializing in farmland.
Gladstone Land Corporation owns farmland in 15 states across 164 farms totaling 113,000 acres.
- Farmland used to grow fruits, vegetables, and nuts
- A market cap or net worth of $918.20 million
- An enterprise value of $1.53 billion
Farmland Partners is slightly larger and owns or manages 185,000 acres across 18 states.
- More than 100 tenants grow over 26 commercial crops.
- A market cap or net worth of $802.12 million
- An enterprise value of $1.25 billion
REITs give investors an advantage by offering a minimum investment to get started as few as one share can be purchased to get involved.
Crowdfunding is a popular option for investing in farmland. Internet-based brokerage platforms bring together funding seekers and large numbers of investors.
Initially started by artists, creatives, and start-ups, crowdfunding now includes a variety of market sectors, including farmland investments. However, most crowdfunding platforms for farmland restrict participation to accredited investors.
Becoming an accredited investor can limit access to small-scale or beginning investors. To qualify as an accredited investor, a person must have a $1,000,000 net worth or an income of $200,000 or more ($300,000 if married). But don’t be discouraged, as each company has established its minimum investment requirements.
- Farmfolio (open to accredited and non-accredited investors)
- Farmland LP
- Steward (open to non-accredited investors)
- Harvest Returns
Growing Your Agriculture Investments
Farmland real estate is not the only way to diversify an investment portfolio through agriculture. You can also buy shares in companies specializing in agricultural commodities—the fertilizer, seed, equipment, and distribution network needed to support productive cropland and pastureland.
Regardless of how you invest in agriculture, it’s an asset class less subject to wild gains and losses like gold or the stock market. Investing in the farming sector can be an easy way to buy dirt with a minimum investment and yield a solid return.
As Davis sings, “You can’t buy happiness. But you can buy dirt.”
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