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- Farmland 👩🌾🌽🐄
Farmland 👩🌾🌽🐄
Owen
November 24, 2024
In partnership with
Welcome to Alternate Universe!
In today’s edition:
Should you add farmland to your portfolio? 🤔
Job opportunities at recently funded European startups 👇
Is a Master’s degree even worth it? Depends on which subject you picked 😅
Billionaires wanted it, but 66,930 everyday investors got it first.
When incredibly valuable assets come up for sale, it's typically the wealthiest people that end up taking home an amazing investment. But not always…
One platform is taking on the billionaires at their own game, buying up and securitizing some of the most prized blue-chip artworks for its investors.
It's called Masterworks. Their nearly $1 billion collection includes works by greats like Banksy, Picasso, and Basquiat. When Masterworks sells a painting – like the 23 it's already sold – investors reap their portion of the net proceeds.
In just the last few years, Masterworks investors have realized net annualized returns like +17.6%, +17.8%, and +21.5% (from 3 illustrative sales held longer than one year).
Past performance not indicative of future returns. Investing Involves Risk. See Important Disclosures at masterworks.com/cd.
The Crux 🔴
When it comes to "one-chart" investment ideas, this one might just take the crown.
Picture slow, steady growth suddenly accelerating into a sharp upward trajectory—hockey-stick growth, the kind of thing startup founders love to slap on their decks. (Trust me, I’ve seen more than a few.)
But this isn’t about Bitcoin or a flashy tech unicorn.
The chart below shows the value of US farmland held by investment firms, which has more than doubled since 2020.
It’s not hard to see why investors are piling into this niche asset class. The thesis is simple: A growing global population fighting over a shrinking supply of arable land.
No-brainer, right?
And they might be onto something. Recent events have only strengthened the case for farmland:
Surging inflation fueled by the COVID-19 pandemic.
Geopolitical turmoil, like Russia’s invasion of Ukraine.
Climate change
Farmland sits at the intersection of geopolitics, climate change, and inflation hedging, offering a seemingly bulletproof solution.
But as with any investment, the reality is rarely so straightforward.
🐰🕳️⌚
What 🤔
Farmland assets are generally divided into two main categories: row crops and permanent crops. The distinction lies in where and how the crops grow.
Row crops, like potatoes, corn, wheat, and soy, are harvested directly from the soil and are often called annual crops. These crops offer flexibility since farmers can rotate them yearly based on demand and supply dynamics.
Permanent crops—such as almonds, grapes, and citrus fruits—grow on trees or vines. They typically have higher long-term value but come with reduced flexibility due to the fixed nature of their production cycles.
The global significance of row crops is staggering. While humans have historically consumed over 6,000 plant species, just nine crops dominate modern diets. Even more striking, three crops—rice, wheat, and maize—account for 50% of the world's calorie intake. This concentration raises significant food security concerns.
Permanent crops, however, appeal to investors for their stability and higher potential returns, though they require a longer-term commitment to achieve profitability. These distinctions make farmland a diverse and strategic asset class, with each type offering unique risks and rewards.
Headwinds⛔
Not all farmland is created equal.
Climate change is expected to dramatically reshape land values across Europe, but the impact will vary. According to the European Environment Agency (EEA), Italy could face the largest loss, with farmland value dropping by €100 billion by 2100. Meanwhile, Nordic countries like Denmark, Finland, and Sweden might see slight gains. These projections, based on Ricardian analyses, assume static climate impacts and don’t account for technological advancements or extreme future events. Similar trends are projected for the southeastern US, where states like Florida could lose 40% of farmland value by 2099, while states like Virginia might gain 30%.
Adding to this, the aging farmer population is another looming challenge. In Europe, 35% of farmers were over 65 in 2016, while only 11% were under 40. Similarly, the average age of US farmers rose to 57.2 years by 2017.
Young people today are increasingly uninterested in taking over family farms—dreams of becoming TikTokers or gamers seem far more enticing than 5 a.m. potato harvests.
This generational shift creates a ripe opportunity for institutional investors to expand their farmland portfolios. Critics, however, argue that the "assetization" of farmland is often framed as sustainable investment, but its true motive remains firmly rooted in profit.
Pros 💪
Beyond the clear investment thesis tied to a growing global population, rising caloric demand, and the need for greater food security, farmland offers additional compelling benefits.
As a real asset, farmland provides a hedge against volatility and inflation. Historically, US farmland has delivered superior annual returns with lower volatility compared to other major asset classes. Furthermore, its negative correlation to stocks and bonds makes it an attractive diversifier in a broader investment portfolio.
Returns from farmland primarily stem from income generated by crop sales, which can fluctuate significantly due to weather and demand patterns. Land value appreciation is the second major driver of returns, though, long-term value in certain locations may face challenges from climate change.
Investment Implications 🤑
Direct investment in farmland is an option, though it may be challenging depending on your geographic location. Overseas investments might be viable depending on local regulations. According to Savills Research, the top five least restrictive European countries for foreign farmland investment are Germany, Spain, the Netherlands, Czechia, and the UK. However, this approach demands significant expertise, as farmland is a complex asset to purchase and manage.
Before acquiring farmland, investors must evaluate factors like crop types, soil quality, water access, and capital requirements. Two common strategies for direct investment are:
Buy and lease: Offers scalability but limits control.
Own and operate: Provides full oversight but requires hands-on management.
The second investment opportunity is owning a farmland REIT. The retail investor has 2 US REITs to look at - Farmland Partners (FPI) and Gladstone Land (LAND). A smaller (and less liquid) third fund, Rural Funds Group is located in Australia.
Let’s look deeper at FPI and LAND, as they have different operational strategies.
Gladstone is more concentrated in California and coastal states, with smaller holdings in the Midwest. Its portfolio focuses on tree nuts, wine grapes, and fresh produce like fruits and vegetables. Farmland producing fresh produce and permanent crops, such as blueberries and nuts, is often a better investment than commodity crops like corn, wheat, and soy due to higher profitability, lower volatility, reduced government dependency, and greater development potential near urban areas.
FPI, on the other hand, has most of its holdings in the Midwest, growing commodity crops like corn, soybeans, and wheat, but also owns farmland in California and the southeastern US. Its portfolio became more geographically diverse after acquiring American Farmland Company in 2017. FPI’s stock price tends to track corn and soybean prices more closely than Gladstone’s.
So what is the better option – direct farmland investments or Farmland REITs?
The answer isn’t straightforward.
Farmland REITs offer retail investors instant diversification across locations and crop types, helping to mitigate weather and production risks. However, their correlation with stock market performance limits their diversification benefits, and REIT prices have experienced significant volatility in recent years.
For those seeking direct ownership, platforms like AcreTrader provide a unique option. They handle management and insurance while passing on annual yields of 3–5% for lower-risk properties. However, access is restricted to accredited investors in the U.S., limiting its availability.
An indirect approach to farming investments is through stocks and ETFs tied to agricultural inputs or equipment. Investors can choose individual stocks or diversified ETFs like MOO or VEGI, which provide exposure to dozens of companies in one go. Another option is the futures market, with funds like the Invesco DB Agriculture Fund, which invests in a basket of agricultural commodities.
In the private market, the agtech sector has seen an explosion of startups in recent years, with varying levels of success. This broad field includes innovations in indoor farming, precision irrigation, and seed technology. While indoor farming attracted significant funding in the early 2010s, its scalability has faced challenges due to high electricity demands, infection risks, and challenging unit economics.
Meanwhile, companies like BeeHero, which leverage hardware solutions to monitor and optimize bee pollination, offer a fresh approach to solving critical agricultural challenges. This diversity of innovation highlights the sector's potential, but also its complexity for investors.
Dig Deeper ⛏️
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Headhunted 🦅
Recently funded private companies need talent! Scout jobs at recently funded European startups, ahead of your competition. 💪
KoRo 🇩🇪 - The European snacking brand has raised €35m in a Series C round. Various roles available in marketing, tech and sales (link)
Nivoda 🇬🇧 - The online diamond marketplace has closed a €48.4m funding round. Multiple roles available (link). Get up to speed on diamonds with my primer article here.
LiquidWind 🇸🇪 - The eFuel producer has successfully raised a €44m Series C. Current job openings here (link)
FairCraft 🇫🇷 - The lab-grown leather startup has raised €15m in new funding. Research, engineering and operations roles open (link)
GridBeyond 🇮🇪 - The battery energy storage company has raised a further €11.25m in funding. Engineering and management roles open (link)
Interestingness📔
The founding & managing partners at the 1bn NATO Innovation fund depart after less than a year (link)
Is a Master’s degree even worth it? Depends on which subject you picked 😅 (link)
Bridgewater is partnering with StateStreet on a new ETF, which will broaden retail access to alternative investments (link)
Younger generations prefer owning alts over traditional investments (link)
📚 New to investing? Grab a PDF copy of my ebook here.
As always, the financial disclaimer!
This is not investment advice. I am not a financial advisor. Make sure to conduct your thorough research before purchasing or selling financial products.