Investing in farmland? Match the crop to your money first

If you’re thinking about investing in farmland, you need to know that the fastest way to lose money is a good asset matched to the wrong money. If not, the deal fails even when the land doesn’t. But if you do, you pick the crop and structure that fit you.

1. Farmland isn’t one thing. The same demographic story sells a boring California almond operation and a high-risk soybean expansion in Brazil. They are barely the same asset class.

2. The real backdrop. Per capita meat consumption has more than doubled since the 1960s. The average U.S. farmer is over 55, and only about 8% are millennials. Over a recent 10-year period, the NCREIF Farmland Index outperformed the S&P 500, and it showed almost no drawdown in 2008.

3. Permanent crops or development. Almonds, pistachios, and wine grapes can carry offtake agreements of 10 to 15 years: steadier cash flow, more modest returns. Row-crop and development plays target more, with more execution, weather, and commodity risk.

Patient money that wants steady income fits established permanent crops or leased row crops. Private equity that wants 20%+ net IRRs and a 5 to 7 year exit fits a development play.

The asset didn’t fail. The match did.

4. Operator first. The land can look great on paper. If the operator can’t run that crop at scale, the thesis falls apart. It’s the same as a value-add house without the right contractor.

5. Pick your structure. Own and operate it. Own it and hire a professional manager. Or own it and lease it to an experienced operator. Most first-time farmland investors do better with the second or third.

Sources: USDA NASS, 2022 Census of Agriculture (February 2024 release)

You don’t need a house picked out or a plan. If you’re wondering what may or may not be possible for you, email me at nlamkin@c21scheetz.com and let’s talk it through.

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