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Cash Crops

Quote of the week: "buy land, they’re not making it anymore" level 1: land grab.

we're not saying you need to pick up the plow, but owning farmland is a good look. Farmland remains one of the least understood alternative investment classes. Large institutions have historically dominated it, but that's changing as investing in farmland is slowly becoming more mainstream for individuals. By 2050, the global population will grow from 7.7B to 10B, putting demands on agriculture 50 - 70% higher than today. Meanwhile, only 7% of the earth's land is suitable for cultivation, and most of that is already producing crops. world population vs. land suitable for growing crops

source: FAO, United Nations, WHO.

Farmland is attractive because it's a scarce resource with intrinsic value that provides passive income. No wonder Bill Gates has been buying up enough farmland to become the largest owner in the US . Benefits of investing in farmland:

  • Returns: averaged ~11% total annual returns (income + appreciation) from 1992-2020, outperforming most asset classes (more on this later).

  • Diversification: historical returns have been uncorrelated to conventional assets like stocks, bonds & real estate.

  • Inflation hedge: rising commodity prices tend to increase farmland profits, causing land to appreciate and serve as a long-term inflation hedge.

Investing in farmland comes with vacancy, weather, political, and other risks, however, the asset class hasn't seen negative returns for over 30 years. Can you dig it (pun intended)? Read on.

level 2: cultivate.

when it comes to wealth, miguel sang it best: "cultivate, plant your seeds now and watch them grow". From a bigger picture perspective for underrepresented communities, farmland ownership builds wealth in the same way the urban farming movement empowers urban dwellers to grow fresh food and builds health. The three types of farmland investing:

  • Row cropland: grow annual crops like corn or wheat with shorter harvest periods requiring less upfront capital but bringing lower stable cash flows.

  • Permanent cropland: grow "higher risk" crops like fruit and nuts with longer investment horizons but potentially higher profits and yields.

  • Livestock: local operators use the land for grazing or direct livestock ownership and operation.

Regardless of the type of farm, farmland makes money essentially the same way as traditional real estate: through lease income & land appreciation. It's why 30% of US farmland is owned by investors who don't farm themselves.

breakdown of U.S. farmland ownership (2014)

source: USDA.

In 2005 there were fewer than 20 farmland funds. By 2017, that number grew to 145 funds, managing a collective $32B. Read on to double-click on what's pulling so many non-farming investors into the game.

level 3: high yield.

don't sleep on cash crop yields. Let's look closer at farmland's returns, which as an asset class outperformed stocks, bonds, and other forms of real estate between 1992 and 2020:

returns on a $100 investment by asset class (1992-2020)

source: FarmTogether.

Even better, farmland has achieved these higher returns with less volatility and lower risk. And that's not including the many tax benefits, and that's not even finagling conservation easements, a.k.a. "the billion-dollar loophole" . If you're Shaq-dancing right now, remember that choosing good farmland requires crazy diligence. If getting into the weeds (and another pun) floats your boat, then check out Buy-A-Farm. Not your ministry? We got you. Hands off ways to invest in farmland:

  • Public Farmland REITs: there are two leading U.S. listed farmland REITs listed in the U.S: Gladstone Land and Farmland Partners.

  • Fractional Ownership: platforms like FarmTogether or AcreTrader (list here) find & operate properties for accredited investors ($5K - $20K min).

  • Private Farmland funds: 57 privately managed farmland funds exist in North America alone with various regional and agricultural focuses.

And there you have it. Owning farmland is a good look. It's up to you to make it happen, but know that the gravy community is with you every step of the way. We just don't want to see any of this . join the conversation:

gravy reads:

Yours in wealth, gravy.

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