Investing in farmland is increasingly becoming a popular strategy for corporations and investment managers looking to add stable assets and diversify their portfolios. Carter Malloy, the CEO and founder of AcreTrader and a leader in the growing farmland investment sector, recently penned an op-ed for Forbes, discussing the trends and motivations behind this investment strategy.
Malloy says that professional farmland investing is “growing significantly” but is remains “underprofessionalized.” Part of the reason for this lack of professionalization, Malloy says, is the lack of transparency in the market.
“The relative immaturity of farmland as a professionalized asset class is due to much of it being closely held, lack of transparency in the marketplace and the unfamiliarity of the asset among non-farmers,” Malloy says.
He cites statistics that approximately 40 percent of farmland in the United States is rented out by owners but that the majority of those owners are individuals. Meanwhile, only three percent of farmland is owned by corporations.
In a December 2018 Forbes article, Nav Athwal echoed Malloy’s statement about the difficulties in investing in farmland. Having an adequate knowledge of farmland to manage this asset as well as the access to the farmland market is critical, he said.
“Part of the reason is just lack of awareness and access and FarmTogether will change that in the coming years,” Athwal said. “Secondly, the market is fragmented, geographically constrained, and often requires specialized knowledge to effectively find and manage land. Small and medium-sized investors, in particular, have struggled to enter the market due to high barriers to entry.”*
Dovetailing with Athwal’s comments on having adequate knowledge, investing in farmland has little connection with more established investment properties, such as the stock market. “However, it also has little or no correlation to most major asset classes, such as stock markets, bonds or gold,” Malloy says.
The positive side of this, though, is that is makes farmland a prime target for portfolio diversification. Malloy backs up this assertion with a white paper from TIAA Nuveen that proposes that assets such as farmland and timber are able to stabilize portfolios while adding a steady annual return.
Portfolio diversification, stability and strong investment returns are the trio of reasons why Malloy says farmland investing is growing and will continue to become a more competitive investment asset.
Read the full op-ed here.
*Emphasis added by author.