Writing last month at U.S. News Online, Dawn Reiss indicated that, “Every year farmland is lost to urbanization. According to American Farmland Trust, a nonprofit that works to save farmland from development, the U.S. loses 40 acres of farmland every hour, with 37 percent of America’s developed land having been converted in the last three decades. In 2015, a little more than 2 million farms were left in the U.S. according to the USDA.
“For those who own it, it’s called ‘gold with a coupon’ since farmland pays rental income to investors who are collecting from farmers while generating capital appreciation that can be used to hedge against inflation.”
Ms. Reiss noted that, “Unlike real estate, which is tied to a local economy, some investors are using farmland to diversify their portfolios because returns tend to be immune to stock or bond fluctuations.
“‘It does have a fairly high cash yield compared to other asset classes with similar risks,’ says Greyson Colvin, managing partner and founder of Colvin & Co., an agriculture-focused investment manager in New York. ‘For institutional investors, this is a great alternative to treasury and corporate bonds.’
“But farmland is difficult to access. It’s privately owned in patchwork pieces across the U.S., much of which is sold at local auctions.
“‘There’s no way to access the best tracts unless you’ve got real expertise,’ [Eric O’Brien, co-founder and managing director at Fall Line Capital in San Mateo, California, a private equity firm specializing in acquiring and developing U.S. farmland] says. ‘We pass on 90 percent of the deals we see for physical or economic reasons. It’s a difficult asset to get your arms around.'”
The U.S. News article added that, “Anyone who invests in farmland should recognize that this is a long-term investment. Experts say many farmland investors fall into two categories – those who want to sell after a decade or so and those who look at this an intergenerational investment that can be inherited…[I]t’s important to understand the difference between annual row crops like corn, soybeans and wheat, and permanent crops such as almonds, peaches and grapes – anything grown in a vineyard or orchard.
“‘They have completely different investment risk and return characteristics,’ [Hunt Stookey, director of research and investment strategy for Ceres Partners, headquartered in South Bend, Indiana] says, citing the larger consistent global demand for row crops that contrasts the popularity boom-and-bust cycles many permanent crops face.”
Ms. Reiss also stated that, “Farming should be measured over cycles of 5 to 10 years and not over one crop. Colvin says his grandfather told him in a five-year period there will be one disaster crop, three adequate crops and one bumper crop that would sustain a farmer for that period.”
