Stability And Steady Returns, Why Billionaires Are Choosing Farmland Investing And How You Can Get Started
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Bill Gates might be the most famous farmer in America, but he's not alone. Farmland investing has become more accessible to everyday investors as well. Why is farmland popular now, and what do investors need to know before diving in?
Benzinga sat down with Dutch Mendenhall, CEO & founder of RADD Companies and author of ‘Money Shackles’, to learn more. Mendenhall has grown a $250 million portfolio of various assets, including farmland, with his team. Mendenhall noted that farmland has become an inflation hedge for the wealthy. It doesn't correlate with the stock market and provides steady returns. The global need for food is expected to rise, with the United Nations forecasting a need for 60% more food by 2050. And it's not just U.S. investors getting in on the farmland trend. There was a 64% rise in acres owned by foreign entities from 2010 to 2021. "The surge in farmland values from an average of $926 per acre in 1997 to $4,080 per acre in 2023 highlights its lucrative potential. This long-term growth potential makes farmland a compelling asset for high-net-worth individuals looking to hedge against market volatility and inflation," said Mendenhall.
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What You Need To Know About Farmland Investing
The trends for farmland investing are mostly positive. Cropland value was up 8.1% in 2023, and pasture land was up 6.2%, according to the United States Department of Agriculture. Mendenhall believes that a stabilization in farmland prices could present an opportunity for investors. However, he sees challenges for the future of farming, including the aging of the American farmer and the potential for increases in meat imports.
Mendenhall says that investors need to consider the types of crops they are invested in. Popular types of crops include soybeans, corn, wheat, hay and fruits and nuts. Regional soil quality and climate conditions significantly impact returns, and understanding local agricultural dynamics is crucial. "In the Midwest, for instance, recent grain market profits indicate a promising environment for crop investment. Additionally, the choice of crops should align with current and future commodity prices, input costs and market trends to maximize returns."
Investors should also be aware of the risks, such as fluctuations in commodity prices. While the long-term demand for food is growing, that does not mean the price of commodities will always trend higher. There is some volatility in commodities. The current high interest rate environment has also created a barrier to entry for new farmers. Farm lending is particularly challenging because of the commodity price volatility and climate conditions. There is a smaller pool of potential lenders that understand the dynamics of farmland lending. "High input costs or declining market demand for specific crops can also diminish its investment potential," adds Mendenhall. "For example, despite a recent farmland sale in Idaho reaching $11,784.40 per acre, properties with high maintenance costs or regulatory constraints might not yield the expected returns."
Three Ways To Invest In Farmland Without Getting Your Hands Dirty
If you aren't the boots-on-the-ground type, you can still earn money from farmland like the billionaires. One way is to invest in one of the publicly traded farmland REITs. Gladstone Land (NYSE:LAND) has a current dividend yield of 4.11% and an annual payout of $0.56. Gladstone Land owns 168 farms across 15 states and 53,975 acre-feet of water assets in California. Gladstone’s tenants produce annual row crops, such as berries and vegetables. The company also owns farms growing permanent crops, such as almonds, apples and olives.
If you prefer the exchange-traded fund route, one option is the Invesco DB Agriculture Fund (NYSE:DBA). It is for investors who want to invest in commodity futures. It has a trailing 12-month yield of 4.04%. Its investments include cocoa, coffee, cattle, soybean and corn futures. The nature of commodities futures investing can be very volatile and subject to a high level of risk.
A third option is crowdfunded farmland investing. FarmTogether allows accredited investors to participate in offerings such as citrus groves, pecan orchards and vineyards. Because these opportunities are for accredited investors, they often require a high minimum investment. However, investors can be rewarded with higher returns for their investment and the more-extended hold periods usually involved.
Billionaires like Bill Gates, Jeff Bezos and Ted Turner, some of the country’s top landowners, know the value of farmland.Farmland investing is a complicated class, but it can deliver rewards for patient investors.
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