Harvesting Wealth: Planting Seeds of Prosperity with Farmland Investing

Investing in farmlands, often considered a strategic move, holds a unique allure for investors. Regardless of the economic climate, people's need for sustenance remains constant, making agriculture and farming investments appear recession-proof.

Moreover, as the global population continues to swell, the role of farming in supporting societies worldwide becomes increasingly critical.

However, for the average investor, the prospect of purchasing an actual farm may seem daunting. The capital commitment required, and the operational costs associated with farming or leasing land can be substantial, making it impractical for most.

Thankfully, investors have numerous alternative avenues to tap into the agricultural sector without having to dive headfirst into farm ownership.

In the United States, approximately 911 million acres of farmland are under cultivation, according to the U.S. Department of Agriculture (USDA). While farmers and ranchers own 61% of this land, leasing the rest from third-party landlords, other operators, and investor groups, including retired farmers, account for a significant portion.

Non-operating individuals or partnerships own 21%, while corporations, trusts, and other entities hold the remaining 10%.

Non-farming investors constitute a small fraction of the nation's farmland ownership. However, their presence has been steadily increasing as more individuals integrate productive farmland into their investment portfolios.

In this guide, we'll discuss why investors are buying farmland and how to include it in a portfolio.

Why Invest in Farmlands

● Diversify Your Wealth: Investing in farmland is like adding a different kind of asset to your investment mix. It's something you can touch, and it's been a way to make money for ages. With more people to feed globally and the potential for decent long-term profits, farmland is an option worth considering.

● Proven Track Record: Land has been a smart investment for a long, long time. U.S. farmland, in particular, has shown that it can hold its value when the economy gets shaky. For example, if you put $10,000 into farmland back in 1991, it would be worth more than $232,100 today.

● Supply and Demand: There are more people but less farmland in the U.S. This means that investing in farmland makes sense because it's likely to perform better than other types of investments over the long run.

● Steady Returns: Farmland doesn't jump up and down in value like gold or the stock market. It's more like a steady climb up a hill. It's been making money every year since 1990, which is a pretty long time. While it's not a sure thing, looking back, it's clear that farming is a safe bet compared to other types of investments.

● Diversify Your Investments: Farmland is different from stocks and bonds, so it's a way to mix up your investments and not put all your eggs in one basket.

● Protection Against Rising Prices: If the government keeps printing lots of money and spending big, it could lead to prices going up (inflation). Farmland is a real thing, and it grows food. When prices go up, so does the value of the crops it produces, which can help protect your money.

● Play It Safe: Farmland doesn't swing wildly in value, so it's a safe bet even when times are tough. It's been there for investors when things get rough, and that's why it's a good choice for people who want to be careful with their money.

Investing in farmland used to be something only a few could do, but not anymore. Now, anyone can explore this option and potentially enjoy the rewards of investing in this down-to-earth asset.

Farmland Returns: A Mix of Ups and Downs

Investing in farmland has its allure, but it's essential to understand that the returns it offers can be quite unpredictable. Some years bring in substantial profits, while others barely keep up with the rising costs of living.

According to data from the NCREIF Farmland Index, which tracks the investment performance of privately-owned farmland properties, there was only one year with negative returns between 2000 and 2020.

In 2020, the market experienced the second-lowest returns since 2001, with a total return of just 3.1%. The disruptions can be largely attributed to the COVID-19 pandemic and supply chain issues.

Over the two-decade period from 2000 to 2020, there were 11 years when farmland delivered double-digit returns. However, it's worth noting that we haven't seen such robust returns since 2015.

So, while farmland can be a valuable investment, it's important to be prepared for the occasional ups and downs.

Understanding the Link Between Inflation and Farmlands

Inflation is a term that often gets thrown around in economic discussions, but what does it mean for investors, and why should it matter to you? Moreover, how does it relate to farmland investment? Let's unpack the connection.

Rising Inflation and Economic Uncertainty

For much of the 1980s and beyond, the United States and other developed economies experienced a trend of decreasing inflation. However, this changed in 2021 due to supply chain disruptions, causing inflation to surge beyond 3%, with interest rates following suit.

This shift has challenged our expectations regarding inflation. According to the Federal Reserve, the uncertainty surrounding expected inflation in April 2023 was twice as high as during the same period in 2019.

As a result, investors are increasingly seeking asset classes that exhibit a correlation with inflation to help manage the risks associated with it.

The Concept of an Inflation Hedge

So, what exactly is an inflation hedge? Inflation hedges are assets or investments that have the potential to either preserve or increase their value when inflation is on the rise.

Over time, inflation gradually erodes the purchasing power of currency. This underscores the importance of investors seeking assets capable of outpacing inflation and preserving their wealth.

Why Farmland is Considered an Inflation Hedge

Farmland is a strong hedge against inflation, thanks to its historical correlation and fundamental value. The farm's value is tied to the commodities it produces, contributing significantly to the Consumer Price Index (CPI), which includes about 40% of commodities.

Notably, certain crops, like corn, have gained new uses, deepening their influence on overall product costs, as seen in the chart below. This highlights the growing link between corn prices and inflation.

In short, farmland's connection to vital commodity production and its historical inflation correlation make it a valuable asset. It's a wise choice for investors looking to safeguard their wealth as prices rise.

Comparing Farmland to Other Inflation Hedge Investments

When considering farmland as an inflation hedge, it's essential to weigh it against other common options:

1. Real Estate: Physical properties like homes and commercial buildings tend to hold their value during inflation. Rental income may rise with inflation, and property values can appreciate.
   
   

2. Precious Metals: Gold, silver, platinum, and other precious metals are sought after in uncertain times. Their inherent value and limited supply make them attractive for wealth preservation.
   
   

3. Long-Term Treasury Bonds: These bonds can offer some protection against inflation as interest rates may rise with inflation. However, over time, inflation can erode their value.
   
   

4. Certificates of Deposit (CDs): While CDs don't directly guard against inflation, they can be part of an inflation risk management strategy. By creating a ladder of CDs with varying maturities, investors can periodically reinvest in new CDs with potentially higher interest rates if inflation picks up.

Each of these investment options carries its own unique advantages and considerations. Deciding between them should align with your specific financial objectives and your willingness to bear certain risks.

Farmland: A Solid Inflation Hedge

When protecting your investments against inflation, farmland stands out for a couple of good reasons.

Dual Returns

Farmland doesn't solely serve as an inflation hedge; it also presents the potential for two different types of returns. In addition to countering inflation, it generates income through rent and sees long-term appreciation in land value.

Since 1991, farmland returns have consistently outperformed other common investments during inflationary periods. Unlike CDs, which provide annual returns, and gold, which can appreciate in value, farmland stands out by offering both of these benefits simultaneously.

Better Risk-Adjusted Returns

Compared to other inflation hedges, farmland has a history of providing stronger risk-adjusted returns. This means that the returns you get from farmland are more substantial relative to the level of risk involved.

For context, CDs have yielded returns lower than the assumed risk-free rate of 3% annually since 1991. In contrast, farmland's Sharpe ratio, which gauges risk-adjusted returns, stands at 1.22, nearly double that of the general real estate market.

Wrap-Up

To sum up, farmland's worth is linked to the goods it produces, making it a reliable protection against inflation. Looking at the past 30 years, historical data demonstrates that farmland values tend to increase alongside inflation, outperforming other preferred asset classes during inflationary periods.

So, if you're considering inflation hedges for your investment strategy, don't overlook the unique benefits of farmland. If you're unsure about how to get started, check out our comprehensive guide.

Discover Farmland Investment with AcreTrader

Meet AcreTrader, your gateway to farmland investments. Founded in 2018 and online since March 2019, AcreTrader is revolutionizing how you can invest in farmland.

Why AcreTrader?

● Rigorous Due Diligence: Count on our team's hands-on experience to meticulously vet top-tier farmland investments.

● Real Diversification: Secure ownership in real, long-term assets spread across the United States.

● Passive Income: Enjoy potential cash returns while we handle all the intricacies.

How It Works

1. Farm Selection and Entity Creation: We pick only the best farms, placing each in a separate entity, typically an LLC.
   

2. Investment: Entities are divided into fractional shares, allowing you to invest at your comfort level.
   

3. Farm Management: AcreTrader takes care of everything, from insurance to property improvement, ensuring sustainable soil practices.
   

4. Distributions: Benefit from annual income disbursed to investors. Historically, this asset class has delivered an unlevered yield of 3% - 5% for lower-risk properties.
   

5. Sell Your Shares: Typically, investors hold ownership for 5-10 years. Upon land sale, you receive your share of any appreciation and applicable previously unreturned principal. Plus, you can potentially sell your shares on the AcreTrader marketplace.

Ready to grow your wealth with farmland investments? Invest with AcreTrader today and secure your stake in the future of farming!

Discover Farmland Investment with FarmTogether

FarmTogether is your gateway to investing in US farmland, transforming it into an accessible and tradable asset class. They exclusively focus on crop-producing farms, making farmland investment simple and rewarding.

About FarmTogether

FarmTogether's CEO, Artem Milinchuk, has a straightforward belief: everyone needs to eat. His deep-rooted connection to farmland, dating back to his youth in the Soviet Union, underscores the significance of this immovable constant.

How It All Started

Artem's career at the Ontario Teachers' Pension Fund exposed him to the vast world of food, agriculture, and farmland. Despite being a $10 trillion asset class, he realized that farmland lacked accessible options for small institutions and everyday investors.

Before founding FarmTogether, Artem served as the CFO and VP of Operations at Full Harvest, a B2B marketplace focused on "ugly" fruits and vegetables.

Investment Opportunities

FarmTogether offers diverse investment opportunities:

1. Crowdfunded Farmland: Recent options like Mount Clare Farm in Nebraska offer an expected 7% Internal Rate of Return with a 2.5% cash yield. Accredited investors can join with a minimum of $15,000, and FarmTogether is working to include retail investors soon.
   
   

2. Sole Ownership: For those seeking sole ownership, FarmTogether offers the chance to own an entire farm with a minimum buy-in of $3 million.
   
   

3. 1031 Exchanges: Experienced real estate investors can utilize the 1031 exchange, swapping traditional real estate for farmland. The minimum investment for a 1031 exchange with FarmTogether is $1 million.

    

Invest with FarmTogether today and become a part of the future of farmland investment, where food and land are unwavering constants in a changing world!

Conclusion

In conclusion, investing in farmland presents a compelling opportunity for accredited investors looking to diversify their portfolios and safeguard against inflation. The two platforms we’ve highlighted above, AcreTrader and FarmTogether, offer innovative ways to access this asset class, each with its own unique approach and advantages.

Both platforms are at the forefront of transforming farmland investment into a more accessible and profitable venture. As we navigate an ever-changing economic landscape, these opportunities to invest in the future of farming offer a promising path to growth and stability.

So, whether you're considering diversifying your portfolio or seeking a hedge against inflation, explore the possibilities with AcreTrader and FarmTogether. The future of farmland investment awaits, and it's ripe with potential.