Uncovering a Once-in-a-Lifetime Shift in Farmland Investing
Aug 14, 2023
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Artem Milinchuk, founder of FarmTogether, discusses the benefits of farmland investments such as lower volatility, resilience during inflationary periods, and portfolio diversification. He predicts significant changes in farmland ownership in the future. The podcast also explores the impacts of inflation data and interest rates on farmland investments, and compares farmland investing to U.S. Treasuries.
Farmland investments offer low volatility, diversification benefits, and attractive long-term returns compared to other asset classes.
The average age of farmers is increasing, leading to a turnover in ownership and investment opportunities.
West Coast farmland, particularly in California, Washington, and Oregon, offers unique advantages for farmland investments due to favorable climate, infrastructure, and high productivity.
Deep dives
Farmland as a Diversified and Profitable Investment
Farmland is a proven asset class with strong historical returns, low volatility, and a diversification benefit. It offers attractive long-term investment potential compared to stocks, bonds, and real estate. Farmland investments have performed well during periods of inflation and recession. The average age of farmers is increasing, leading to a turnover in ownership and investment opportunities. Institutions are showing interest in farmland, but family-owned businesses still dominate the market. Farmland on the West Coast, particularly in California, Washington, and Oregon, offers unique advantages due to favorable climate, infrastructure, and high productivity. As an investment, farmland provides a stable income stream, and while returns may vary depending on the type of farming, the total return can target 6-7%. Farmland investments offer long-term compounding potential and contribute to sustainable, diverse, and affordable food production.
The Potential Impact of Environmental Policies on Farming
While farmland investments have not faced the same challenges as fossil fuel industries, there are potential shifts in the agricultural sector due to environmental policies. Changes in regulations may impact specific farming practices and crops like corn, but emerging middle-class demand for animal proteins supports feed crops like corn. Sustainable agriculture practices, investments in regenerative farming, and a shift toward healthy eating may present opportunities in farmland investments. Unlike fossil fuels, the need for food ensures a consistent demand for farmland long-term.
Benefits and Risks of Farmland Investments
Farmland investments offer the advantage of low leverage and high net income margins. They provide diversification and preservation of capital. However, farmland investments require expertise in analyzing regions, understanding regulations, and selecting operators. Publicly traded farmland REITs exist but may have limitations such as reduced control, lack of property selection, and different risk-reward profiles. Long-term thinking and compounding interest are keys to successful farmland investing. The market for farmland is ready for greater sophistication, technology adoption, and increased access for investors.
The Attractiveness of West Coast Farmland
West Coast farmland, especially in California, Washington, and Oregon, offers unique advantages such as favorable climate, access to infrastructure, and innovation. California is a significant agricultural producer, and water management systems support farming in the state. Washington has excellent water resources through the Columbia River, while Oregon has become a prominent player in the hazelnut market. Family-owned farms dominate the industry, limiting the influence of large corporations and institutions. Opportunities for farmland investments are present in these regions due to their productive and diverse agricultural output.
The Potential Impact of Environmental Policies on Farming
While farmland investments have not faced the same challenges as fossil fuel industries, there are potential shifts in the agricultural sector due to environmental policies. Changes in regulations may impact specific farming practices and crops like corn, but emerging middle-class demand for animal proteins supports feed crops like corn. Sustainable agriculture practices, investments in regenerative farming, and a shift toward healthy eating may present opportunities in farmland investments. Unlike fossil fuels, the need for food ensures a consistent demand for farmland long-term.
On this week's Stansberry Investor Hour, Dan and Corey welcome Artem Milinchuk to the show. He's the founder and Head of Strategy for FarmTogether. First, Dan and Corey kick off the podcast by discussing the last CPI and PPI reports. While the CPI reading came in at 3.2% inflation, certain components within the CPI are much higher. Inflation is still here, and now it's just a matter of what direction it goes and what the Federal Reserve does next. (00:00)
Next, Artem joins the conversation to share the benefits of farmland investments. Farmland boasts comparatively lower volatility than stocks, real estate, gold, and other asset classes. Artem highlights that the charm of farmland lies not only in its resilience during inflationary and recessionary periods but also in its capacity to diversify portfolios. (16:15)
The discussion shifts to the impact of elevated prices and interest rates on farmland investments. Artem provides insights into the broader farmland market, revealing that a significant majority (98%) of farmland is currently family-owned. He anticipates substantial changes in ownership over the next two decades, with the U.S. Department of Agriculture projecting a transformation of up to two-thirds of farmland. (24:00)
Artem shares his extensive experience investing in farmland on behalf of others since 1992, achieving impressive returns of approximately 10.5%. He concludes by drawing a noteworthy comparison between farmland investing and U.S. Treasuries, highlighting farmland's potential as a robust hedge against inflation. (44:57)