Author Topic: Farmland REITs  (Read 4535 times)

PDXTabs

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Farmland REITs
« on: February 12, 2020, 03:47:32 PM »
Right now I have no bonds and the only REITs I own are hidden in equities index funds. From time to time I consider diversifying into REITs, but what really interests me are farm REITs. Is that a horrible idea? There aren't many of them, and as far as I can tell there is not a farm REIT index, and that most (all?) of them are in the USA.

Is this a crazy idea?

Rob_bob

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Re: Farmland REITs
« Reply #1 on: February 13, 2020, 05:04:00 PM »
I have a few index REITs and more individual REITs.  I do not own any farm REITs.  You would think that everyone needs to eat so they would be a sure thing, but it's tough to be a farmer and I have steered clear of them. 

Maybe some of the big corporate farms are publicly traded, not REITs, just a regular business but I've never looked into that.

BTW, I live not too far South of PDX  :)

maizefolk

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Re: Farmland REITs
« Reply #2 on: February 13, 2020, 05:31:57 PM »
Over the long term, productive land in areas where you don't need to worry about water rights is probably going to be a really safe investment. In the short to medium term my guess is that prices will continue to fall for a while.

Farmland hasn't come down all that much from what it cost in 2012 when we were looking at $8/bushel corn. Between the soy tariffs, the incredibly wet/late planting season in '19, and years of comparatively low prices eating into farmers' financial reserves we're starting to see an increase in farm bankruptcies.

Most farmland prices are set at auctions where the buyers and sellers are both (usually large) family farmers and a given chunk of land comes up for sale maybe once in a generation, so even when prices are temporarily low, people will often do everything they can to buy nearby chunks of land  when it becomes available, which means prices some down slowly.

But if low prices keep going much longer, there will be a lot more land going on the market all at once and the neighbors who would normally be the ones to buy up the land if given the once in a lifetime opportunities to do so won't have the cash or cash flow to do so.

I'd also stay far away from any land depending on water rights to be productive, no matter how senior the rights. At some point states like Colorado, Arizona, and California are going to have to bite the bullet and rethink the whole water rights system and there are a lot more voters in the cities that need water than the farms that currently have priority access to that water.

Given how all of the pitfalls above is and how few farmland REITs there seem to be, I'd be inclined to give them a pass for now.

brandon1827

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Re: Farmland REITs
« Reply #3 on: April 27, 2022, 06:56:32 AM »
Sorry to necropost here...but I was reading about FarmTogether this morning. While not a farm REIT, it does provide a vehicle for investment in farmland. I'm still in the early learning stages, but I believe the gist is that you can add farmland to your portfolio and receive a return when/if crops are sold (hopefully at a profit) seasonally. You basically pick farmland, its location, and the crops. I think I read it has a $15,000 minimum investment threshold. I love the idea in general...just still not sure if it's safe. I'd love to hear more opinions or if anyone has any experience investing in this.

Mr. Green

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Re: Farmland REITs
« Reply #4 on: April 27, 2022, 08:15:48 AM »
Something interesting I read a few months back that echoes maizefolk's comment about staying away from water-challenged areas. In Arizona, farmland uses 75% of the water. So when a suburban development displaces a farm it is actually a net positive on the water demand for the region. I had no idea and thought it was actually the other way around. Even though the OP is only two years old it's interesting to see what has happened in just that amount of time with the drought going on in the west. With Lake Powell at a record low level, there are discussions now about decommissioning and tearing down the Glen Canyon dam. Dams have been on the outs the last decade or two anyway as we 've come to realize the impact flooding river basins has had on local environments. However the loss of spare water capacity would further strain availability in areas that depend on the Colorado River for irrigation in their current form. There will surely have to be some kind of reckoning when the current multi-state water agreement has to be remade because the Colorado is simply no longer able to support the volumes allowed to be drawn from it under the current system.
« Last Edit: April 27, 2022, 03:04:34 PM by Mr. Green »

maizefolk

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Re: Farmland REITs
« Reply #5 on: April 27, 2022, 08:39:55 AM »
Sorry to necropost here...but I was reading about FarmTogether this morning. While not a farm REIT, it does provide a vehicle for investment in farmland. I'm still in the early learning stages, but I believe the gist is that you can add farmland to your portfolio and receive a return when/if crops are sold (hopefully at a profit) seasonally. You basically pick farmland, its location, and the crops. I think I read it has a $15,000 minimum investment threshold. I love the idea in general...just still not sure if it's safe. I'd love to hear more opinions or if anyone has any experience investing in this.

There are a few of these businesses floating around trying to do for farmland what Fundrise/CrowdStreet/etc have done for residential real estate. Looking at the website, I have big initial two concerns:

1) It looks like they only have two deals live on the site and only one is a specific farm (a pistachio orchard in California). That suggests you wouldn't actually have a lot of flexibility to pick the location/crop/farmland.

2) "Given the closing timeline for this deal and the sellerís continued involvement in farm management during the escrow period over the course of the 2022 growing season, FarmTogether has determined that it was in our investors' best interest for the seller to retain responsibility for the 2022 crop. Our management of this farm will begin after the conclusion of the 2022 harvest, and investors will begin earning distributions from the farmís net operating income as of the 2023 crop year."

For this investment to make sense you have to have confidence that the people running this company aren't only good at picking farmland, negotiating a fair price for that farmland, and forecasting future returns. You ALSO have to believe they are good at knowing how to manage each of the different types of crops in each of the different parts of the country they hope to buy farmland in and/or they'll be good at identifying people who know how to do those things and negotiating fair salaries for those people.

Farming is hard. Folks who have been doing it a one or two decades are typically just starting to get good at making the necessary gut calls in response to changes in weather and market conditions and they typically specialize in one cropping system in one part of the country. And the difference in both short term returns and long term soil health/productivity are substantial between a good farm manager and an indifferent one.

FLBiker

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Re: Farmland REITs
« Reply #6 on: April 27, 2022, 09:15:23 AM »
I've been wondering about this a bit myself.  I live in a good farming area (the Annapolis Valley in Nova Scotia) and I would certainly be interested in investing in local farms.  It's interesting to read about some other ways this is being done.

PDXTabs

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Re: Farmland REITs
« Reply #7 on: April 27, 2022, 09:44:54 AM »
Sorry to necropost here...but I was reading about FarmTogether this morning. While not a farm REIT, it does provide a vehicle for investment in farmland. I'm still in the early learning stages, but I believe the gist is that you can add farmland to your portfolio and receive a return when/if crops are sold (hopefully at a profit) seasonally. You basically pick farmland, its location, and the crops. I think I read it has a $15,000 minimum investment threshold. I love the idea in general...just still not sure if it's safe. I'd love to hear more opinions or if anyone has any experience investing in this.

Necroposting is welcome by me. I still look at Acre Trader and the Iroquois Valley REIT sometimes, but I haven't pulled the trigger.

ChpBstrd

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Re: Farmland REITs
« Reply #8 on: April 27, 2022, 12:15:51 PM »
It's not particularly economical for farmers to manage multiple separate plots of land miles down the road from each other. The supply lines, transportation costs, and irrigation redundancy add up quick. So when you are renting farmland to others your potential customer base is usually the handful of landowners with adjacent farms and connecting roads.

Reduce that handful of people even further so that only those with access to large amounts of financing are included.

One of Michael Porter's Five Forces for competitive analysis is the pricing power of customers. If farmland REITs are in an auction with maybe 3-5 participants, how easy would it be for those farmers to collude with one another to keep the price low? How much leverage does the REIT have if their best alternative to a negotiated agreement is to let the fields sit fallow (increasing the cost to plow when it is eventually put back into service). That's what scares me out of this market. I'll stick with apartments.

AccidentialMustache

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Re: Farmland REITs
« Reply #9 on: April 27, 2022, 09:46:57 PM »
I used to work in ag tech and plenty of midwest farmers will scatter/lease clusters of fields a ways apart. If you do it correctly you get different timing on your on-field operations, so more use of the (expensive) equipment. It also gives you options of where to work in case of wet fields, where the rain might have missed something elsewhere.

That said, most farmers aren't turning a hell of a lot of profit. Nor are the land owners, compared to landlords. High rent in some of the most highly productive soil on the planet would be $250-350/acre. That's per year, on land that'll run you $10-15k/acre to buy. The only good news is taxes tend to be fractions of a penny on the dollar and there is no furnace to break or drywall for a tenant to tear up, so you'd get to keep basically all of it.

If you take real estate, in my midwest market, 1% is the new 2%, but that's still 1200/yr per 10k. Keep half-ish after piti and expenses and you're well ahead of farmland, even accounting for 10% vacancy.

DW experimented with the cattle lots in one of the "you buy in, we have farmers raise it, you get a cut of the profit!" and profits have been slim. Would have done better in an average (eg, 7%) market. Would have done much better in the pants-on-head market since the financial crisis. She at least hasn't lost money, overall.

Maverick1

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Re: Farmland REITs
« Reply #10 on: November 26, 2022, 10:19:54 AM »
I've been interested in farmland investing for a decade.  I don't think farmland will outperform the stock market, however it think it provides great safety and diversification from my other assets (primarily my principal residence and stock market investments).  I made offers on 2 properties, one was accepted but broke down in negotiation of conditions.  I also tried buying farmland at auction a few times but was outbid by large corporations.

In October made a $50k investment in Veripath.  https://veripathfarmland.com/  I'm in Canada so I don't know if this is available for American investors.  The fees are high but it got me into an asset class I was struggling to on my own.  I was looking at buy 1 or 2 quarter sections, whereas with Veripath I own a small percentage of 100,000 acres spread across 3 provinces.

The investment is still pretty recent so I can't say how well it has performed other than I'm excited to finally have exposure to what I think is a great asset class.

FLBiker

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Re: Farmland REITs
« Reply #11 on: November 28, 2022, 06:06:25 AM »
I've been interested in farmland investing for a decade.  I don't think farmland will outperform the stock market, however it think it provides great safety and diversification from my other assets (primarily my principal residence and stock market investments).  I made offers on 2 properties, one was accepted but broke down in negotiation of conditions.  I also tried buying farmland at auction a few times but was outbid by large corporations.

In October made a $50k investment in Veripath.  https://veripathfarmland.com/  I'm in Canada so I don't know if this is available for American investors.  The fees are high but it got me into an asset class I was struggling to on my own.  I was looking at buy 1 or 2 quarter sections, whereas with Veripath I own a small percentage of 100,000 acres spread across 3 provinces.

The investment is still pretty recent so I can't say how well it has performed other than I'm excited to finally have exposure to what I think is a great asset class.

Thanks for this!  I'll have to take a look.  I'm in Canada as well, but I'm a US citizen so this may not be a great option for me if it requires me to do PFIC filings.  I'll have to dig into it a bit more.  I'm definitely interested, though.  I live in the Annapolis Valley, and I'd love to do something local but I haven't figured out how.

maizefolk

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Re: Farmland REITs
« Reply #12 on: November 30, 2022, 09:08:36 AM »
Farmland is starting to feel either frighteningly bubbly or like investors know something I don't about long term sustained inflation in food/commodity prices.

Iowa farmland has sold for between $25,000-$30,000/acre. ($10-12k/acre was the peak for prime farmland a few years ago)

Dryland farms in western Kansas without water rights and receiving only 10 inches a year of rainfall are selling for close to $7k/acre.

Those prices only make sense in a world with much more expensive food than we have today.

Paper Chaser

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Re: Farmland REITs
« Reply #13 on: November 30, 2022, 09:27:45 AM »
Farmland is starting to feel either frighteningly bubbly or like investors know something I don't about long term sustained inflation in food/commodity prices.

Iowa farmland has sold for between $25,000-$30,000/acre. ($10-12k/acre was the peak for prime farmland a few years ago)

Dryland farms in western Kansas without water rights and receiving only 10 inches a year of rainfall are selling for close to $7k/acre.

Those prices only make sense in a world with much more expensive food than we have today.


Or a world with much less inhabitable land.

PDXTabs

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Re: Farmland REITs
« Reply #14 on: November 30, 2022, 10:49:52 AM »
Farmland is starting to feel either frighteningly bubbly or like investors know something I don't about long term sustained inflation in food/commodity prices.

Iowa farmland has sold for between $25,000-$30,000/acre. ($10-12k/acre was the peak for prime farmland a few years ago)

Dryland farms in western Kansas without water rights and receiving only 10 inches a year of rainfall are selling for close to $7k/acre.

Those prices only make sense in a world with much more expensive food than we have today.


Or a world with much less inhabitable land.

And/or much less farmable land. US lost 11 million acres of farmland to development in past 2 decades. So more people, less farmland, and for the post part less productivity on the farmland that we have left because of climate change.

Mr. Green

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Re: Farmland REITs
« Reply #15 on: November 30, 2022, 11:10:47 AM »
I would be concerned about the long-term viability of a farmland investment. As food prices increase we will hit a threshold in which it is cheaper to grow our plants indoors and meat in labs. We're already getting close. At some point farmland will become irrelevant, which is pretty awesome from an environmental perspective. The value of ranch and farm land in the Midwest would plummet. I would love to see the US government buy up huge swaths of land from Mexico to Canada, rip up all the fence lines, and return that part of the country to open range not owned by anyone and able to be enjoyed by all. How cool it would be to have herds of bison once again running wild.

maizefolk

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Re: Farmland REITs
« Reply #16 on: November 30, 2022, 04:19:06 PM »
Those prices only make sense in a world with much more expensive food than we have today.[/b]

Or a world with much less inhabitable land.

A world with much less arable land is one way we might end up in a world where food is much more expensive. A world with many more people is another. ... we're currently on track for both. Definitely not ideal.

I would be concerned about the long-term viability of a farmland investment. As food prices increase we will hit a threshold in which it is cheaper to grow our plants indoors and meat in labs. We're already getting close. At some point farmland will become irrelevant, which is pretty awesome from an environmental perspective. The value of ranch and farm land in the Midwest would plummet. 

Depending on how we measure it, we already are or we're not even close.

If farms paid the full economic cost of water, we already are for high value produce (lettuce, spinach tomatoes, etc). But that's not going to hit the price of farmland in the midwest. It's going to hit the price of farmland in Arizona and California's central valley. 75% of Arizona's fresh water supply is going to irrigating vegetables. In. The. Desert.

There's basically no way for vertical farming/controlled environment agriculture to get without shouting distance of the cost of production of for calories/protein from row crops in the midwest though. Would require multiple orders of magnitude of cost reductions and my guess is that there is less than one order of magnitude of additional efficiency to be squeezed out of controlled environment agriculture. The high infrastructure costs kill you, and even if they didn't, the efficiency losses of creating electricity to generate light to be fixed by photosynthesis into plant biomass vs plant biomass being produced from naturally occurring light would still kill you.

Meat replacements seem to be a bit of a bust right now from a consumer uptake perspective. At least Beyond Meat is melting down. Impossible Foods might still be doing better. Replacing cows with meat-growing-vats is a different question, and one I don't have enough background knowledge to comment on intelligently.

roomtempmayo

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Re: Farmland REITs
« Reply #17 on: December 01, 2022, 10:11:59 AM »
I would be concerned about the long-term viability of a farmland investment.

I'm not sure underlying fundamentals really drive ag land prices.

The rent ratios are poor by just about any standard.  For example, I priced out pasture land a few years ago, and pasture around here rents for just a little more than the property taxes.  I doubt rent for the Iowa corn fields @maizefolk mentions comes anywhere close to servicing the note.

People seem to buy farmland because it feels scarce, it's tangible, and it carries some status in farming communities, not because there are any great returns to be had.

A farmland REIT seems like the worst of all worlds, in which there are lousy returns, but you still don't personally control the tangible asset. 

maizefolk

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Re: Farmland REITs
« Reply #18 on: December 01, 2022, 09:46:30 PM »
Indeed. In 2022, the best Iowa farmland might command cash rents on the order of $300-400/acre per year.

Mr. Green

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Re: Farmland REITs
« Reply #19 on: December 02, 2022, 07:56:29 AM »
The fact that farmland doesn't rent for much is why the profitability of what's grown off of it matters so much. No one would buy farmland if they knew they'd lose their shirt every year without fail, at least not at current prices. If the losses were bad enough you couldn't give farm land away, except to those rich enough to buy the acreage simply to own big acreage. That benefits no one, which is why I'd love to see the day where it can be turned into wild land that no one privately owns. Not all farmland, just some of the more challenging areas that we really have no business farming in anyway.

Of course, the adoption of meat alternatives will depend on those companies' ability to see the long game. As meat costs rise, if they think they can increase their pricing to be just a bit cheaper than meat it'll never happen. But if the cost difference becomes significant, the cost savings alone will drive people to buy the alternatives. If that transition were to reach a critical mass, game over.

Ranchland is definitely the most at risk. Produce is primarily a California product and water is really the chief concern there. Big crops like corn, wheat, and soybeans will never be grown indoors. Meat though. And from an environmental standpoint that's one of the biggest offenders.
« Last Edit: December 02, 2022, 07:59:37 AM by Mr. Green »

roomtempmayo

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Re: Farmland REITs
« Reply #20 on: December 02, 2022, 10:21:06 AM »
Indeed. In 2022, the best Iowa farmland might command cash rents on the order of $300-400/acre per year.

When I was a kid growing up in the land of clean farming, it was part of the cultural common knowledge that it was impossible to get into farming if you weren't born into a landowning family because the land and machinery were too expensive.

Thinking about these low rental rates makes me wonder if there's a model based almost entirely on renting land and subcontracting lots of the machinery-intensive work.  Arial spraying has long been contracted out, and even 25 years ago harvesting started to be done on a contract basis.

Is there a viable model to be had just renting land and contracting out the planting, spraying, and harvesting?  Maybe you own your own cultivator, but otherwise contract the land and labor?  Just how necessary is it to actually own the land and machinery yourself anymore?

ChpBstrd

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Re: Farmland REITs
« Reply #21 on: December 02, 2022, 02:03:23 PM »
Indeed. In 2022, the best Iowa farmland might command cash rents on the order of $300-400/acre per year.

When I was a kid growing up in the land of clean farming, it was part of the cultural common knowledge that it was impossible to get into farming if you weren't born into a landowning family because the land and machinery were too expensive.

Thinking about these low rental rates makes me wonder if there's a model based almost entirely on renting land and subcontracting lots of the machinery-intensive work.  Arial spraying has long been contracted out, and even 25 years ago harvesting started to be done on a contract basis.

Is there a viable model to be had just renting land and contracting out the planting, spraying, and harvesting?  Maybe you own your own cultivator, but otherwise contract the land and labor?  Just how necessary is it to actually own the land and machinery yourself anymore?

I'd be more interested in a sort of AirBNB or Uber for plowing, planting, harvesting, etc. services. Instead of having millions of dollars of equipment sitting in barns all year for each individual farmer to use once a year, entrepreneurs take the equipment and labor wherever there is an order, do the job, and leave for the next job. This would work because of different planting and harvest times for different geographic areas and crops, and variations in weather from place to place. The entrepreneurs could travel from state to state as weather and climate dictate different activities at different times for farms in different places. Employees could specialize in equipment operation, transport, and mechanics rather than farmers being jacks of all trades.

Mr. Green

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Re: Farmland REITs
« Reply #22 on: December 02, 2022, 02:37:11 PM »
I'm not sure that an Uber for farming equipment would be necessary. When my parents farmed dad said a lot of the area farmers would plant their crops in such a manner that one set of equipment could be used to work multiple farms. Thefarmers would all pitch in during the harvest so that they all had the surge in people power covered without having to pay farm hands for the short surge in effort. I'm sure this still happens with small farmers all over the country today.

ATtiny85

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Re: Farmland REITs
« Reply #23 on: December 03, 2022, 05:53:22 AM »

I'd be more interested in a sort of AirBNB or Uber for plowing, planting, harvesting, etc. services. Instead of having millions of dollars of equipment sitting in barns all year for each individual farmer to use once a year, entrepreneurs take the equipment and labor wherever there is an order, do the job, and leave for the next job. This would work because of different planting and harvest times for different geographic areas and crops, and variations in weather from place to place. The entrepreneurs could travel from state to state as weather and climate dictate different activities at different times for farms in different places. Employees could specialize in equipment operation, transport, and mechanics rather than farmers being jacks of all trades.

This already happens, but not on a large scale. Combine army moving south to north. Havenít heard much about them lately.

I work for an ag equipment company, so I donít mind barns full of equipment with the warranty clock tickingÖ

Michael in ABQ

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Re: Farmland REITs
« Reply #24 on: December 03, 2022, 06:31:34 AM »
The typical yield for agricultural land is usually in the low single digits. For comparison to commercial real estate that was the kind of return investors were willing to get for something like a trophy office building in a major downtown area. If you were looking at more typical real estate (apartment complexes, suburban office buildings, retail strip centers, etc.) yields were generally in the high single digits to low double digits - at least prior to interest rates spiking.


I've seen Facebook ads for farmland investing - to me that just screams BUBBLE!! FOMO!! GET IT NOW THERE'S NO MORE LAND EVAR!!!


So I would definitely pass and just stick it in something with a higher expected return.

Captain Cactus

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Re: Farmland REITs
« Reply #25 on: December 03, 2022, 10:02:51 AM »
Something is definitely amiss with farmland investing, particularly with Gates getting his grubby paws into the game.  My recommendation is to stick to a regular old REIT index if you want to invest in real estate, and also buy yourself a plot that you can plant yourself to supplement your food supply.  Maybe it includes a wood lot as well for firewood.


Maverick1

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Re: Farmland REITs
« Reply #26 on: December 03, 2022, 12:06:31 PM »
I think farmland carries a premium to real estate due to stability.  There is a lot more than can go wrong with commercial property than farmland (repairs/maintenance, change in use requiring significant renovations etc.).  We as a society are constantly adding to the stock of real estate while the amount of farmland shrinks to accommodate this.

Maverick1

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Re: Farmland REITs
« Reply #27 on: December 03, 2022, 12:10:15 PM »
Farmland is starting to feel either frighteningly bubbly or like investors know something I don't about long term sustained inflation in food/commodity prices.

Iowa farmland has sold for between $25,000-$30,000/acre. ($10-12k/acre was the peak for prime farmland a few years ago)

Dryland farms in western Kansas without water rights and receiving only 10 inches a year of rainfall are selling for close to $7k/acre.

Those prices only make sense in a world with much more expensive food than we have today.

Farmland where I live ranges from $1,000 to $5,500 Canadian dollars per acre.  There are constraints on foreign ownership that keep the prices lower but also restrict future price appreciation.

https://www.westerninvestor.com/british-columbia/saskatchewan-farmland-value-growth-leads-the-west-5915614

Michael in ABQ

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Re: Farmland REITs
« Reply #28 on: December 03, 2022, 09:29:31 PM »
I think farmland carries a premium to real estate due to stability.  There is a lot more than can go wrong with commercial property than farmland (repairs/maintenance, change in use requiring significant renovations etc.).  We as a society are constantly adding to the stock of real estate while the amount of farmland shrinks to accommodate this.

The amount of farmland being converted to other uses is miniscule. It may be apparent near a large city but if you spend hours driving through the Midwest, you'll realize just how much of the US is arable land.

ChpBstrd

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Re: Farmland REITs
« Reply #29 on: December 04, 2022, 09:22:59 PM »
I think farmland carries a premium to real estate due to stability.  There is a lot more than can go wrong with commercial property than farmland (repairs/maintenance, change in use requiring significant renovations etc.). 
There's a lot that can go wrong with farmland too. Erosion for example: https://www.npr.org/2021/02/24/967376880/new-evidence-shows-fertile-soil-gone-from-midwestern-farms Or under-rotation of crops, under-fertilization, falling water tables, local infrastructure at risk of shutdown, etc. It's enough to make a farmer want to package up their land and sell it to a city slicker as an investment.

More to the point though... lots of farmers went bankrupt and ended up fire selling their land during the Great Depression.

maizefolk

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Re: Farmland REITs
« Reply #30 on: December 04, 2022, 09:31:20 PM »
Erosion, under/over fertilization, poor crop rotation, etc are exactly the sort of problems that get a lot worse when you are renting out land to short term tenant farmers vs land that is owned and farmed by the same person.

In the second case the person making farm management decisions as a personal stake in the long term viability and value of the farmland. In the first case, not so much. Which is going to be the vast majority of farmland owned by REITs.

AccidentialMustache

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Re: Farmland REITs
« Reply #31 on: December 04, 2022, 09:45:11 PM »
We as a society are constantly adding to the stock of real estate while the amount of farmland shrinks to accommodate this.

Detroit would like a word with you about that.

Also, when the suburbs ponzi scheme comes crashing down in a wider way, you're going to see a bunch of re-wilded (or re-farmlanded) land, as well as a price drop (because the next-to-the-town land is going to lose the "some developer will snap this up for 4-10x the ag land rates" premium).

ChpBstrd

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Re: Farmland REITs
« Reply #32 on: December 04, 2022, 09:57:32 PM »
We as a society are constantly adding to the stock of real estate while the amount of farmland shrinks to accommodate this.

Detroit would like a word with you about that.

Also, when the suburbs ponzi scheme comes crashing down in a wider way, you're going to see a bunch of re-wilded (or re-farmlanded) land, as well as a price drop (because the next-to-the-town land is going to lose the "some developer will snap this up for 4-10x the ag land rates" premium).

I once got a quote to have my suburban driveway jackhammered, excavated, and hauled off. It was a lot more than my parcel of land would be worth as agricultural land. I can only imagine the cost for 3 foot deep house foundations.

M5

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Re: Farmland REITs
« Reply #33 on: December 27, 2022, 03:25:08 PM »
I think many people seriously underestimate how difficult it is to consistently make a good living as a farmer. I don't know of any other occupation or investment where there are so many factors outside your control causing you to lose money. Number one is the weather. It's not something you invest in to get rich, it's something you do because you love it.

Many large and corporate farms that look successful at first glance are often just a write-off for other business interests. And how do the successful family farmers actually build wealth? By owning the land they farm.

And to whomever mentioned contracting out all the work, that's a great option for a small number of acres, but once you get over a certain number (I'd say around 250 acres depending on equipment age), it's far cheaper to own the equipment, do everything yourself, and average the cost over all acres for the lifespan of the equipment. For example, let's say you spend $150k on a new-to-you combine w/corn and bean headers and you only farm 250 acres. If well maintained, I'd say it's reasonable to get at least 20 years of use before replacement, which comes out to $7500/yr and $30/acre over those 20 years. Compare that to paying at least $35/acre for custom harvesting. And of course those are today's rates which will only go up. Sure, you'll spend more than that $150k in the end in maintenance and repairs, but it's still cheaper overall. The more acres you farm, the cheaper that equipment becomes to own.

Now for some real-world numbers on a midwestern dryland farm with relatively poor dirt (in comparison to all the Northern corn belt states). My FIL is a 3rd generation small family farmer and has allowed me to farm a few of his acres... for fun and to try some different things. Since I live in a different state, I pay all inputs and pay him to do everything. Sometimes we'll be back to visit and I might do the work but I'm still using his equipment. This year I planted corn, for which I would normally shoot for a yield of 120-140 bu/acre, but thanks to some untimely dry spells and a poor choice for nitrogen, ended up yielding only 63 bu/acre. I netted roughly $120/acre. BUT, he doesn't charge me rent and ate the cost of nitrogen fertilizer because he felt that decision was his mistake. If you include those expenses, that's another $225/acre and I would've lost $105/acre. Now this was a rough year and having a lot of acres in soybeans helps to offset the losses in corn, but I still suspect it was a break even year overall.

I don't think investing in farmland is a bad decision for diversification, but do think you really need to own the land to be successful. That doesn't mean you have to farm it, it just means you have the control over who you rent to and what practices you're comfortable with. I also think your chances of success are greater when share-cropping vs cash rent. Expectations also need to be lowered. Don't count on raking in passive income, just hope your investment breaks even and you end up with a valuable, paid-off chunk of land in 30 years.

 

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