No industry is more enduring than agriculture, and no commercial activity is as likely to persist through future epochs either. One can imagine various enterprises reduced to vestiges in the face of progress, such as bricks-and-mortar retailing, or the manufacture of internal combustion engines. And whether any particular tech stock or cryptocurrency will hold value through a season is always a question. But investors may justifiably posit the human race will always eat and will want to eat well.

The perhaps sobering news, however, is demographers expect 8.5 billion people on the planet by 2030, up from 7.5 billion now. In only 12 years, food will have to be produced for another 1.2 billion mouths.

Agriculture is indisputably an industry with a solid future.

ORIGINS

Perhaps 11,500 years ago humans began management of some crops and trees, and then livestock, such as sheep. The concept of farming for profit rather than subsistence appears to have started in 15th century Great Britain, at least in an organized fashion.

From such origins, the modern agriculture sector emerged, through mechanization, to the Green Revolution of the 1960s, to more recent strides in productivity through innovations such as drip-irrigation and genetic engineering. Despite many prophets of doom, the expanding global population is better fed than ever.

Investors can reason farmland will likely always have some value and future food markets will be larger. But vexingly, investors must also concede that cultivated land will likely yield more in the future than today, on a per acre basis. A bulge in yields can lead to commodity gluts and lower farmland values.

THE RECENT TRACK RECORD

In 2003, the average acre of farmland in the United States sold for $1,270, a figure that rose to $3,080 in 2017, reports the U.S. Department of Agriculture, or about a 6.5 percent annually compounded rate of return before adjustment for inflation. In the past four years, however, farmland prices have been flat, reflecting bumper crops of corn, soybeans and other commodities.

Despite undulations, the historical record shows farmland tends to appreciate over decades. Adjusted for inflation, farmland values are about triple 1967 levels, and double 2000 levels.

If past is prologue, buying farmland is a decent long-term investment, though prolonged slumps are possible. Also, the simple appreciation in farmland value excludes any profits made from farming crops or livestock, or renting out land to tenants.

LISTED VEHICLES

Listed stocks or exchange-traded funds purely in farmland are curiously rare, which presents a challenge for the armchair investor-farmer.

One possible play is Farmland Partners, a 4-year-old real estate investment trust that owns and buys North American farmland coast-to-coast, which it then rents out to farmers who produce 30 major crops. Farmland Partners thus gains both geographic and crop-exposure diversity.

In November, Farmland Partners reported it had completed a $110 million purchase of California almond, pistachio and walnut orchards, which will be leased back to their original owner, Olam International, on a revenue-share basis for 25 years.

A small-cap, Farmland Partners pays a decent dividend of 6.2 percent. But the bull markets of recent years have completely bypassed Farmland Partners, which went public in 2014 at $14.00 a share, but has descended ever since, hitting $8.25 in January 2018. Soft earnings has been the culprit.

On a more positive note, Farmland Partners has been buying acreage, with 165,000 acres either now owned or under contract, compared with less than 8,000 acres at the time of its IPO. The company appears able to access capital markets to increase its portfolio, while maintaining dividends for shareholders.

For very patient investors, Farmland Partners may be a place to plant some seeds. The stock is off substantially from the IPO price, pays a good dividend and is accumulating a portfolio. If there is a future bull market in croplands, Farmland Partners may grow some returns.

Another listed stock in farmland is Gladstone Land Corp., also a REIT, and one that pays monthly distributions to stockholders. Akin to Farmland Partners, Gladstone Land has not impressed Wall Street, trading for $9.33 in January, actually down over the past five years. The small-cap Gladstone own 73 farms, with a combined 63,000 acres, in nine different states, and offers a 4.1 percent dividend. Gladstone appears able to access capital markets to acquire more farmland, most recently through a preferred stock offering.

Buying listed farmland stocks has the advantage of instant liquidity when needed. A click of the mouse is enough to clear an investor of his or her farmland portfolio. An investor in Farmland or Gladstone is obviously not buying at the top of the market, and may be buying toward a mid-term nadir of U.S. farmland prices.

SYNDICATIONS

For most crop farming in the United States, any plot of land smaller than 80 acres is generally not considered investable. The economies of scale in farming dictate larger plots of land to handle mechanized equipment, costs of irrigation and management, pest control, and so on. But many retail investors would find buying 100 acres at $4,000 per acre a daunting proposition, in which case a syndicator might be the answer.

The annual returns through farmland syndication investing are initially modest, starting at 3.0 percent to 3.5 percent a year. Typically, a syndicator assembles a portfolio of farmland and syndicates to a group of investors. Rent on farmland is passed through to investors in the syndicate. The hope is farm rents will rise, boosting returns. In the long run, farmland is generally expected to appreciate at 5 percent annually, so if an exit strategy is activated, some returns will materialize for investors on sale.

Of course, syndicators do not work for free; they must be compensated, and from the investors’ pockets. That explains why farmland generally rents out at 4.0 percent of value, but in syndication investors should expect returns of 3.0 percent to 3.5 percent of value.

Another drawback of investment in syndications is they are generally not liquid. An investor is usually on the bandwagon until a sale of syndicate assets is organized.

Direct purchase of land is an option for those with investment portfolios large enough to acquire 100 acres or more. As with any large, discrete investment, risks, such as tenants who do not pay, and other usual hazards of property ownership, exist.

CONCLUSION

Farmland is not an investment that will go to zero, or even likely depreciate over longer horizons. Investors who hold onto farmland through cycles can expect, perhaps, 5 percent a year in land appreciation, and perhaps 3 percent to 5 percent a year in annual rents, if all goes reasonably well, and if past trends persist.

Exiting a farmland investment profitably may take a number of years, however, possibly even longer than a decade if values slump, which they have in the past. There is even the potential that rising yields per acre and global production will curb farm values for sustained stretches of time.

That said, farm assets are a way to diversify a portfolio, and land values have been depressed for several years. It may be time to plant some capital in agriculture.

Benjamin Cole (7continents7@gmail.com) is a freelance writer based in Thailand.