October 8, 2025 • 17 mins
Farmland is a real asset that can be accessed through private funds. The asset has seen broad, non-correlated gains, hedged against rising prices. And farming acreage shrinks every year.
Brandon Zick is Chief Investment Officer of Ceres Farmland Fund (now part of Wisdom Tree); the fund owns and manages about $2 billion in agricultural land assets.
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:08):
As ascus.
Speaker 1 (00:24):
Have you ever thought about investing in farmland? Real assets
have become increasingly popular, primarily accessed through alternative investments like
private equity funds. Farmland has seen broad non correlated gains,
and they show little signs of slowing down. After all,
(00:44):
they ain't making any more land. I'm Barry Ritcholts, and
on today's edition of At the Money, we're gonna discuss
investing in farmland. To help us unpack all of this
and what it means for your portfolio, let's speak with
Brandon Zick. He's chief investment officer of Sarah's Farmland Fund,
managing about two billion dollars in ag assets. By the
(01:06):
time you hear this, Sarah's will have closed their sale
to Wisdom Tree, where they're going to continue operating as
an independent agriculture investing firms. And full disclosure, I'm also
an investor in Sara's through my own personal investing. So Brandon,
let's just start with a basic question. What makes farmland
(01:27):
a compelling addition to any investment portfolio compared to other
real estate assets?
Speaker 3 (01:33):
Thanks Barry and Farmland, it provides a lot of a
lot of different things that help in a portfolio. So
Parmerlan will generate a good amount of income. It's positively
correlated with inflation, and it's also non correlated with other
things in your portfolio and becomes a diversifier, and it's
a capital appreciating asset. It's not a depreciation play.
Speaker 1 (01:52):
So yield capital appreciation and an inflation hedge.
Speaker 3 (01:56):
That's correct. Yeah, and that's why investors have been investing
in farm land for a long time. But it's now
becoming more broad based to the public markets.
Speaker 1 (02:04):
So let's talk about that historical pattern. If there's rent
and yields, is this potentially a fixed income substitute? Do
dividends get paid out to investors?
Speaker 3 (02:15):
Yeah, that's the way that a lot of people look
at it. It's the annual income could be paid off
as a dividend. So you do see some public rates
and private rates that are structured that way that would
force that dividend out. But you can also just continue
to reinvest as well, and you have that capital appreciation.
And if you think back over the last seventy years
and look at data from the Chicago Fed, you'll see
(02:35):
that long term appreciations averaged about six percent annualized, and
the components of that are really just inflation plus gains
and productivity. So because farms these are living beasts where
they're actually growing crops every year, and improvements and technology
can help crop yields and increase the bottom line, you
see a number of those benefits fall to the landowner.
Speaker 1 (02:58):
So you guys have scaled up to two billion dollars
in farmland investing. How do you identify and source attractive
farmland opportunities? What's the current market like?
Speaker 3 (03:09):
Yeah, so there's a number of ways to buy farms.
So there are public auctions that exist. They're very localized
and will attend two to three hundred of those a year,
but the majority of farmland is done through private transactions.
And these aren't listings. You don't see for sale signs
on farms.
Speaker 1 (03:25):
If there's no there's no Zillo for agriculture.
Speaker 3 (03:28):
No, not yet, at least there are people trying to
do something like that. But there are there are ways
to source farms kind of off market, and we do
all of that through our farm tenant network. So we're
not even though I grew up on a family farm,
we're not operating the farms ourselves. We're renting the properties
to active family farmers. All of those farmers own ground.
(03:49):
They rent land from US, but they rent a real
a large preponderance of their acres from other people, and
those other people are usually not institutional investors. They're a
states trust, non farming airs, people that after two or
three generations they will likely sell the land, and so
we use our tenant network or our farmer network to
try to source some of those opportunities privately.
Speaker 1 (04:11):
And you guys mostly invest in the US. What regions
or sectors do you find most attractive.
Speaker 3 (04:17):
Yeah, we're the US only. Our mandate is really anywhere.
We invest in twelve states, but about two thirds of
our acres are located in Indiana and Michigan, and almost
ninety percent of our acres are in the Great Lakes States,
So add in Illinois, Wisconsin, Kentucky, Ohio, and western New York.
We think that's our sweet spot because there's a fantastic
(04:38):
market for rental with farmers. It's highly competitive, it's very
high quality soils, which are great for growing crops. We
also have a lot of water resources, both underground and
it rains. When you're trying to grow a crop and
these are commodities, so low cost producer wins and being
closer to the population centers of the East Coast and
(04:58):
where all of these crops generally move is a huge
benefit as well.
Speaker 1 (05:02):
You mentioned inflation earlier. How does inflation and just general
macroeconomic trends affect farmland values and investor interests.
Speaker 3 (05:12):
Farmland is positively correlated with inflation, and that comes from
in a few different ways. So you know, clearly crop
prices can increase, and you know that's one of the
bigger things that can help drive revenue on farms is
increase in crop prices crop yields. But over time, you know,
farmland has a number of different uses, so whether it's
(05:33):
for development or other types of things on top of
just your typical farmland, you'll see that increase value over time.
So even with a booming economy, you can see farmland
values increasing as well, even if the actual agg production
on that farm is not increasing.
Speaker 1 (05:47):
So let's talk about those other opportunities briefly. Mineral rights easements.
You mentioned hunting when we were chatting about this earlier.
Even data Warehouse and AI they're looking for property in
those spaces. How significant add on, so those to basic
(06:08):
value of farms.
Speaker 3 (06:09):
Yeah, so there's really two different groups. I would put
that in. You can have some of the ancillary income,
so like harvesting select timber on farms. Typically when you're
buying a property, it's not one hundred percent tillable, and
even during even if it were to be one hundred
percent tillable and growing crops, there are off seasons and
you want to continue to manage those properties. So we
(06:31):
lease out farms for hunting, We harvest select timber. We
like oil and gas rights or other types of minerals
that can be incremental. We've had wind turbines on properties
and those are all kind of incremental to your farm value.
Then there are other things like solar where you're taking
the majority of the farm to convert it. And in
that case you may have a thirty year lease inflation
(06:53):
hedged of course, but the income is going to be
anywhere from three to five times the farm income. Wow,
so you could be generating fifteen to twenty percent a
year in gross income off of your over your cost
basis for solar. For solar, and then there are other
opportunities when you own real estate, when you own dirt.
There's optionalities to your point, around concert or around easements.
(07:13):
So easements can be conservation easements, which we don't really
do much of, but they can also be easements for
running fiber, for running power, and there's a lot of
natural gas. There's a lot of opportunity there, and then
you can see for manufacturing. You can sell properties for
that for multiples of farmland value. And now in the
Midwest we're seeing a huge demand for data center development
(07:36):
and that's anywhere from eight to twenty times farmland value.
Because when they identify a site that has great power resources,
great water, hopefully few neighbors has fiber. There there's a
lot of ways to be able to, you know, build
these things that then you know they're going to be
willing to pay a strong price.
Speaker 1 (07:56):
And this administration has been urging the owners of these
or builders of these to focus in the US. They're
not comfortable with the servers overseas, even if it's cheaper
to operate.
Speaker 3 (08:10):
That's definitely an issue that's out there, and you really
need to be within the US and areas where there's
capacity on the grid. You certainly need favorable or favorable
government and all these areas to be able to do
it as well, and you will see a saturation in
certain spots that then they have to move to others.
(08:31):
So some of the largest data center campuses in the
US are outside of Chicago and Columbus, Ohio. You don't
see much new development going on there because of lack
of power over saturation. So we're seeing much more demand
in places where we have a big footprint, like Indiana, Michigan,
parts of Kentucky, parts of upstate New York.
Speaker 1 (08:50):
So what are the risks unique to farmland investing? How
much of this is climate change and weather, water access
and just government relation and nimbiism. What do you have
to think about when you're considering risky business.
Speaker 3 (09:06):
Yeah, so when you think of the climate side, those
are the traditional risks to farmland, so droughts and floods
and things like that. So we prefer to invest in
areas where you have that natural rainfall, you have strong soils,
good drainage. You don't buy farms right next to big
rivers because they can flood. So there's and then as
you think over time, okay, there's climate change, Is there
(09:29):
a warming happening? Is the grain belt moving farther north.
So our position around the Great Lakes, we think, mutes
a lot of that risk.
Speaker 1 (09:37):
In other words, this is an area that's only going
to become more attractive for farming.
Speaker 3 (09:41):
That's right. If the Great Lakes region is running out
of water, then everyone else already did. So it's an
interesting dynamic, and so that's where we focus our investment.
But there's farmland all across the US that has all
different types of values and different ways to manage risk.
And in farmland you can do that through implementation of
drainage structures. You can do it through irrigation to try
(10:03):
to be able to have water when others don't. So
there are ways to mitigate some risk there. To your
other point about regulation, I mean, the history of the
US is agriculture, so there are a lot of regions
that agricultures encouraged, and development always brings pressure. So when
you think about what are the issues in farmland that
(10:23):
farmers face today, it's development pressure, it's labor pressure, the
input cost and things that come in. So if you're
in areas like California where we don't invest, there is
a lot more regulation around water, around labor that makes
it more difficult to be an operator when you're growing
a commodity crop. So you know, there are places that
we move away from or we don't invest in generally.
(10:46):
I'm not saying we never would, but we haven't yet
because we just don't think it's an attractive.
Speaker 1 (10:50):
So let's talk about California for a second. Every time
I'm on the West Coast, I marvel at how local
and fresh the food is. Avocados are everywhere, Tomatoes are wonderful.
They have a lot of really good local crops. But
what I'm hearing from you is California may not be
an attractive agricultural investment area. Is that taxes, is that regulation?
(11:15):
Is that water availability? What are the challenges of farmland
in California?
Speaker 3 (11:20):
Yeah, so those local crops that are going to local markets, are,
you know, the produce you can get in California second
to none. I would agree with that. That's not a
scalable large business from our standpoint.
Speaker 2 (11:33):
Now.
Speaker 3 (11:34):
While there are some very large owners of farmland that
produce the California QT oranges, the big pistachio growers and
almond growers, they're all large corporate groups that this is
the only spot to grow that the avocado. So that
makes sense. But from the row crops standpoint, there's a
lot of water being used to grow crops that you
(11:55):
kind of have this misalignment of incentives longer term around
use it or lose its strategies around water. So you'll
see a lot of cotton and rice grown in California
that I would probably say that's not where you should
be growing that and using that water. But you know,
we look at regulation. It's coming everywhere around water because
water will be you know, the next big battle that's
(12:16):
out there, and restriction is going to come right after regulation.
So as things get restricted, we think it's more prudent
to be in areas where there's an abundance of water
or an aquafer recharge, as opposed to California, where you
have no new infrastructure being built to capture water, no
new reservoirs.
Speaker 1 (12:36):
What about desalination, You would think there's the Pacific Ocean adjacent,
they should have all the water they want.
Speaker 3 (12:42):
Well, you for municipal, that actually might make sense at
some point. I mean the cost is significant, the energy
costs are significant. As those costs come down for the
highest and best use of water, municipal that would be
the right answer. And an industrial agriculture is a low
value use of water. It doesn't mean an area is
like California that they don't have senior water rights. Agricultureally
(13:04):
does have senior water rights in parts of California and
Arizona because the farmers were the first to settle out there,
so they're actually ahead of cities in Arizona, farmers are
ahead of cities like Phoenix in terms of where they stack.
Speaker 1 (13:16):
And hence the water issues in places like New Mexico
and Arizona.
Speaker 3 (13:20):
That's right, and then you just have this the actual
climate is not it's not recharging aquifers, and if you're
not going to build infrastructure to take advantage of when
it does rain, then that's an area that we don't
find an attractive investment opportunity.
Speaker 1 (13:35):
Let me ask another California investing farm and land question, vineyards.
Are these an investable asset or is that essentially a
sort of vanity project that all these separate vineyards are running.
Speaker 3 (13:49):
That's an interesting question because you know, wine consumption's gone
way down, and the same for craft beer. You know
people have moved a non alcoholic they've moved to Seltzer's,
high New etc. So from that standpoint, it's a little
challenged on the macro level. The idea of investing in vineyards. Actually,
one of my brothers went to Cornell and he ran
(14:11):
vineyards in California and other parts of the country, and
he would tell you it's just very difficult with labor.
You have to be able to sell the bottles for
a very high price. If you're just producing grapes and
then selling them someone else that's selling the retail product,
that's a difficult business to be in. So we don't
get excited about investing in vineyards, although in Michigan we
do have one juice grape farm and I think Welch's
(14:33):
will continue to produce grape juice for a while.
Speaker 1 (14:36):
Really interesting as an investor in farmland, how do you
balance the two different forms of gains annual income from
rent and crops versus just long term appreciation of the
underlying land.
Speaker 3 (14:53):
That's really the benefit of farmland is you can you know,
if we look at our return series over time, in
areas of strong come prices, you tend to have much
higher land appreciation and in an are in cycles, the
parts of the cycle with low commodity prices, income comprises
a bigger point, a bigger portion of your return, and
that high income actually mutes volatility over time because you're
(15:15):
going to generate that four or five percent income every year,
and that can really across cycles dampen the volatility you
might see from changes in commodity prices. Now, you would
think if commodity prices are changing, your rents are materially
changing all of our leases. We like multi year leases
that are negotiated kind of three years at a time,
so even if commodity prices are moving down, our rents
(15:38):
aren't really moving down, or only a portion would be
negotiated down, and then as they go up, we try
to build a call option into the lease that we
can benefit somewhat along the way.
Speaker 1 (15:47):
Final question, what are the most significant challenges emerging in
farmland investing looking forward?
Speaker 3 (15:54):
Yeah, I think there's going to be a lot more
competition because historically there really hasn't been much institutional investment
in this space. Only about three percent of US farmland
is institutionally owned, and some of that is weighted much
more heavily toward permanent crops like vineyards or orchards. Areas
of the country where you can put larger dollar amounts
(16:15):
to work, so the southeast or the west. But I
think a lot of people are identifying farmland as a
great asset, especially for long term oriented investors. This is
an asset you can hold for thirty, forty to fifty
years with some of that optionality around solar, wind, timber,
even selling into manufacturing or data center construction. Infrastructure funds
(16:39):
should have a lot of interest in this because it's
a long term asset you can pare with these long
term goals and liabilities.
Speaker 1 (16:45):
Really fascinating. So to wrap up, if you're looking for
a non correlated investment class, an alternative that's a little
different than multifamily or office space or other traditional real estate,
consider farmland. You get regular income, appreciation of the underlying land,
(17:06):
and you're somewhat hedged against rising prices and inflation. I'm
Barry Ridholts. You've been listening to Add the Money on
Bloomberg Radio.
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:08):
As ascus.
Speaker 1 (00:24):
Have you ever thought about investing in farmland? Real assets
have become increasingly popular, primarily accessed through alternative investments like
private equity funds. Farmland has seen broad non correlated gains,
and they show little signs of slowing down. After all,
(00:44):
they ain't making any more land. I'm Barry Ritcholts, and
on today's edition of At the Money, we're gonna discuss
investing in farmland. To help us unpack all of this
and what it means for your portfolio, let's speak with
Brandon Zick. He's chief investment officer of Sarah's Farmland Fund,
managing about two billion dollars in ag assets. By the
(01:06):
time you hear this, Sarah's will have closed their sale
to Wisdom Tree, where they're going to continue operating as
an independent agriculture investing firms. And full disclosure, I'm also
an investor in Sara's through my own personal investing. So Brandon,
let's just start with a basic question. What makes farmland
(01:27):
a compelling addition to any investment portfolio compared to other
real estate assets?
Speaker 3 (01:33):
Thanks Barry and Farmland, it provides a lot of a
lot of different things that help in a portfolio. So
Parmerlan will generate a good amount of income. It's positively
correlated with inflation, and it's also non correlated with other
things in your portfolio and becomes a diversifier, and it's
a capital appreciating asset. It's not a depreciation play.
Speaker 1 (01:52):
So yield capital appreciation and an inflation hedge.
Speaker 3 (01:56):
That's correct. Yeah, and that's why investors have been investing
in farm land for a long time. But it's now
becoming more broad based to the public markets.
Speaker 1 (02:04):
So let's talk about that historical pattern. If there's rent
and yields, is this potentially a fixed income substitute? Do
dividends get paid out to investors?
Speaker 3 (02:15):
Yeah, that's the way that a lot of people look
at it. It's the annual income could be paid off
as a dividend. So you do see some public rates
and private rates that are structured that way that would
force that dividend out. But you can also just continue
to reinvest as well, and you have that capital appreciation.
And if you think back over the last seventy years
and look at data from the Chicago Fed, you'll see
(02:35):
that long term appreciations averaged about six percent annualized, and
the components of that are really just inflation plus gains
and productivity. So because farms these are living beasts where
they're actually growing crops every year, and improvements and technology
can help crop yields and increase the bottom line, you
see a number of those benefits fall to the landowner.
Speaker 1 (02:58):
So you guys have scaled up to two billion dollars
in farmland investing. How do you identify and source attractive
farmland opportunities? What's the current market like?
Speaker 3 (03:09):
Yeah, so there's a number of ways to buy farms.
So there are public auctions that exist. They're very localized
and will attend two to three hundred of those a year,
but the majority of farmland is done through private transactions.
And these aren't listings. You don't see for sale signs
on farms.
Speaker 1 (03:25):
If there's no there's no Zillo for agriculture.
Speaker 3 (03:28):
No, not yet, at least there are people trying to
do something like that. But there are there are ways
to source farms kind of off market, and we do
all of that through our farm tenant network. So we're
not even though I grew up on a family farm,
we're not operating the farms ourselves. We're renting the properties
to active family farmers. All of those farmers own ground.
(03:49):
They rent land from US, but they rent a real
a large preponderance of their acres from other people, and
those other people are usually not institutional investors. They're a
states trust, non farming airs, people that after two or
three generations they will likely sell the land, and so
we use our tenant network or our farmer network to
try to source some of those opportunities privately.
Speaker 1 (04:11):
And you guys mostly invest in the US. What regions
or sectors do you find most attractive.
Speaker 3 (04:17):
Yeah, we're the US only. Our mandate is really anywhere.
We invest in twelve states, but about two thirds of
our acres are located in Indiana and Michigan, and almost
ninety percent of our acres are in the Great Lakes States,
So add in Illinois, Wisconsin, Kentucky, Ohio, and western New York.
We think that's our sweet spot because there's a fantastic
(04:38):
market for rental with farmers. It's highly competitive, it's very
high quality soils, which are great for growing crops. We
also have a lot of water resources, both underground and
it rains. When you're trying to grow a crop and
these are commodities, so low cost producer wins and being
closer to the population centers of the East Coast and
(04:58):
where all of these crops generally move is a huge
benefit as well.
Speaker 1 (05:02):
You mentioned inflation earlier. How does inflation and just general
macroeconomic trends affect farmland values and investor interests.
Speaker 3 (05:12):
Farmland is positively correlated with inflation, and that comes from
in a few different ways. So you know, clearly crop
prices can increase, and you know that's one of the
bigger things that can help drive revenue on farms is
increase in crop prices crop yields. But over time, you know,
farmland has a number of different uses, so whether it's
(05:33):
for development or other types of things on top of
just your typical farmland, you'll see that increase value over time.
So even with a booming economy, you can see farmland
values increasing as well, even if the actual agg production
on that farm is not increasing.
Speaker 1 (05:47):
So let's talk about those other opportunities briefly. Mineral rights easements.
You mentioned hunting when we were chatting about this earlier.
Even data Warehouse and AI they're looking for property in
those spaces. How significant add on, so those to basic
(06:08):
value of farms.
Speaker 3 (06:09):
Yeah, so there's really two different groups. I would put
that in. You can have some of the ancillary income,
so like harvesting select timber on farms. Typically when you're
buying a property, it's not one hundred percent tillable, and
even during even if it were to be one hundred
percent tillable and growing crops, there are off seasons and
you want to continue to manage those properties. So we
(06:31):
lease out farms for hunting, We harvest select timber. We
like oil and gas rights or other types of minerals
that can be incremental. We've had wind turbines on properties
and those are all kind of incremental to your farm value.
Then there are other things like solar where you're taking
the majority of the farm to convert it. And in
that case you may have a thirty year lease inflation
(06:53):
hedged of course, but the income is going to be
anywhere from three to five times the farm income. Wow,
so you could be generating fifteen to twenty percent a
year in gross income off of your over your cost
basis for solar. For solar, and then there are other
opportunities when you own real estate, when you own dirt.
There's optionalities to your point, around concert or around easements.
(07:13):
So easements can be conservation easements, which we don't really
do much of, but they can also be easements for
running fiber, for running power, and there's a lot of
natural gas. There's a lot of opportunity there, and then
you can see for manufacturing. You can sell properties for
that for multiples of farmland value. And now in the
Midwest we're seeing a huge demand for data center development
(07:36):
and that's anywhere from eight to twenty times farmland value.
Because when they identify a site that has great power resources,
great water, hopefully few neighbors has fiber. There there's a
lot of ways to be able to, you know, build
these things that then you know they're going to be
willing to pay a strong price.
Speaker 1 (07:56):
And this administration has been urging the owners of these
or builders of these to focus in the US. They're
not comfortable with the servers overseas, even if it's cheaper
to operate.
Speaker 3 (08:10):
That's definitely an issue that's out there, and you really
need to be within the US and areas where there's
capacity on the grid. You certainly need favorable or favorable
government and all these areas to be able to do
it as well, and you will see a saturation in
certain spots that then they have to move to others.
(08:31):
So some of the largest data center campuses in the
US are outside of Chicago and Columbus, Ohio. You don't
see much new development going on there because of lack
of power over saturation. So we're seeing much more demand
in places where we have a big footprint, like Indiana, Michigan,
parts of Kentucky, parts of upstate New York.
Speaker 1 (08:50):
So what are the risks unique to farmland investing? How
much of this is climate change and weather, water access
and just government relation and nimbiism. What do you have
to think about when you're considering risky business.
Speaker 3 (09:06):
Yeah, so when you think of the climate side, those
are the traditional risks to farmland, so droughts and floods
and things like that. So we prefer to invest in
areas where you have that natural rainfall, you have strong soils,
good drainage. You don't buy farms right next to big
rivers because they can flood. So there's and then as
you think over time, okay, there's climate change, Is there
(09:29):
a warming happening? Is the grain belt moving farther north.
So our position around the Great Lakes, we think, mutes
a lot of that risk.
Speaker 1 (09:37):
In other words, this is an area that's only going
to become more attractive for farming.
Speaker 3 (09:41):
That's right. If the Great Lakes region is running out
of water, then everyone else already did. So it's an
interesting dynamic, and so that's where we focus our investment.
But there's farmland all across the US that has all
different types of values and different ways to manage risk.
And in farmland you can do that through implementation of
drainage structures. You can do it through irrigation to try
(10:03):
to be able to have water when others don't. So
there are ways to mitigate some risk there. To your
other point about regulation, I mean, the history of the
US is agriculture, so there are a lot of regions
that agricultures encouraged, and development always brings pressure. So when
you think about what are the issues in farmland that
(10:23):
farmers face today, it's development pressure, it's labor pressure, the
input cost and things that come in. So if you're
in areas like California where we don't invest, there is
a lot more regulation around water, around labor that makes
it more difficult to be an operator when you're growing
a commodity crop. So you know, there are places that
we move away from or we don't invest in generally.
(10:46):
I'm not saying we never would, but we haven't yet
because we just don't think it's an attractive.
Speaker 1 (10:50):
So let's talk about California for a second. Every time
I'm on the West Coast, I marvel at how local
and fresh the food is. Avocados are everywhere, Tomatoes are wonderful.
They have a lot of really good local crops. But
what I'm hearing from you is California may not be
an attractive agricultural investment area. Is that taxes, is that regulation?
(11:15):
Is that water availability? What are the challenges of farmland
in California?
Speaker 3 (11:20):
Yeah, so those local crops that are going to local markets, are,
you know, the produce you can get in California second
to none. I would agree with that. That's not a
scalable large business from our standpoint.
Speaker 2 (11:33):
Now.
Speaker 3 (11:34):
While there are some very large owners of farmland that
produce the California QT oranges, the big pistachio growers and
almond growers, they're all large corporate groups that this is
the only spot to grow that the avocado. So that
makes sense. But from the row crops standpoint, there's a
lot of water being used to grow crops that you
(11:55):
kind of have this misalignment of incentives longer term around
use it or lose its strategies around water. So you'll
see a lot of cotton and rice grown in California
that I would probably say that's not where you should
be growing that and using that water. But you know,
we look at regulation. It's coming everywhere around water because
water will be you know, the next big battle that's
(12:16):
out there, and restriction is going to come right after regulation.
So as things get restricted, we think it's more prudent
to be in areas where there's an abundance of water
or an aquafer recharge, as opposed to California, where you
have no new infrastructure being built to capture water, no
new reservoirs.
Speaker 1 (12:36):
What about desalination, You would think there's the Pacific Ocean adjacent,
they should have all the water they want.
Speaker 3 (12:42):
Well, you for municipal, that actually might make sense at
some point. I mean the cost is significant, the energy
costs are significant. As those costs come down for the
highest and best use of water, municipal that would be
the right answer. And an industrial agriculture is a low
value use of water. It doesn't mean an area is
like California that they don't have senior water rights. Agricultureally
(13:04):
does have senior water rights in parts of California and
Arizona because the farmers were the first to settle out there,
so they're actually ahead of cities in Arizona, farmers are
ahead of cities like Phoenix in terms of where they stack.
Speaker 1 (13:16):
And hence the water issues in places like New Mexico
and Arizona.
Speaker 3 (13:20):
That's right, and then you just have this the actual
climate is not it's not recharging aquifers, and if you're
not going to build infrastructure to take advantage of when
it does rain, then that's an area that we don't
find an attractive investment opportunity.
Speaker 1 (13:35):
Let me ask another California investing farm and land question, vineyards.
Are these an investable asset or is that essentially a
sort of vanity project that all these separate vineyards are running.
Speaker 3 (13:49):
That's an interesting question because you know, wine consumption's gone
way down, and the same for craft beer. You know
people have moved a non alcoholic they've moved to Seltzer's,
high New etc. So from that standpoint, it's a little
challenged on the macro level. The idea of investing in vineyards. Actually,
one of my brothers went to Cornell and he ran
(14:11):
vineyards in California and other parts of the country, and
he would tell you it's just very difficult with labor.
You have to be able to sell the bottles for
a very high price. If you're just producing grapes and
then selling them someone else that's selling the retail product,
that's a difficult business to be in. So we don't
get excited about investing in vineyards, although in Michigan we
do have one juice grape farm and I think Welch's
(14:33):
will continue to produce grape juice for a while.
Speaker 1 (14:36):
Really interesting as an investor in farmland, how do you
balance the two different forms of gains annual income from
rent and crops versus just long term appreciation of the
underlying land.
Speaker 3 (14:53):
That's really the benefit of farmland is you can you know,
if we look at our return series over time, in
areas of strong come prices, you tend to have much
higher land appreciation and in an are in cycles, the
parts of the cycle with low commodity prices, income comprises
a bigger point, a bigger portion of your return, and
that high income actually mutes volatility over time because you're
(15:15):
going to generate that four or five percent income every year,
and that can really across cycles dampen the volatility you
might see from changes in commodity prices. Now, you would
think if commodity prices are changing, your rents are materially
changing all of our leases. We like multi year leases
that are negotiated kind of three years at a time,
so even if commodity prices are moving down, our rents
(15:38):
aren't really moving down, or only a portion would be
negotiated down, and then as they go up, we try
to build a call option into the lease that we
can benefit somewhat along the way.
Speaker 1 (15:47):
Final question, what are the most significant challenges emerging in
farmland investing looking forward?
Speaker 3 (15:54):
Yeah, I think there's going to be a lot more
competition because historically there really hasn't been much institutional investment
in this space. Only about three percent of US farmland
is institutionally owned, and some of that is weighted much
more heavily toward permanent crops like vineyards or orchards. Areas
of the country where you can put larger dollar amounts
(16:15):
to work, so the southeast or the west. But I
think a lot of people are identifying farmland as a
great asset, especially for long term oriented investors. This is
an asset you can hold for thirty, forty to fifty
years with some of that optionality around solar, wind, timber,
even selling into manufacturing or data center construction. Infrastructure funds
(16:39):
should have a lot of interest in this because it's
a long term asset you can pare with these long
term goals and liabilities.
Speaker 1 (16:45):
Really fascinating. So to wrap up, if you're looking for
a non correlated investment class, an alternative that's a little
different than multifamily or office space or other traditional real estate,
consider farmland. You get regular income, appreciation of the underlying land,
(17:06):
and you're somewhat hedged against rising prices and inflation. I'm
Barry Ridholts. You've been listening to Add the Money on
Bloomberg Radio.
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