FarmTogether review - sustainable farmland investment manager

Imagine a world where investing in farmland is as accessible as purchasing stocks or bonds. This concept is gaining traction, especially with platforms like FarmTogether, which is revolutionizing how both accredited and institutional investors can engage in this historically lucrative asset class. Let’s explore how this innovative approach is reshaping the landscape of farmland investment.

Rooted in a personal connection to farming, the story of FarmTogether begins with founder Artem Milinchuk. Inspired by his own family's farming experiences, he recognized the immense potential in this underutilized investment avenue. This article delves into the workings of FarmTogether, the historical returns of farmland investments, and the unique benefits and risks associated with this asset class.

Understanding how FarmTogether operates

FarmTogether is not just another investment platform; it is a dedicated farmland investment manager that connects investors with prime agricultural opportunities across America. Through its parent company, FarmTogether Management LLC, they acquire farmland using the capital raised from investors. The process involves rigorous evaluation and inspection of potential farming sites to ensure they meet high standards before purchase.

Investors have two primary avenues for returns:

• Income generation: This comes from cash lease payments or revenue-sharing models with farmers who cultivate the land.
• Capital appreciation: Investors can also realize profits from the increased value of the land over time, as FarmTogether aims to buy below market value and enhance the property for a profitable exit in 10 to 15 years.

The diverse expertise of the FarmTogether team

The strength of FarmTogether lies in its diverse team, which boasts a wealth of experience across finance, agriculture, and real estate sectors. This mix of expertise is crucial for making informed investment decisions and managing farmland effectively. The team understands not only the financial aspects of investments but also the intricacies of agricultural operations.

To learn more about their team, you can check out their about page.

Strategic partnerships in farmland investment

FarmTogether engages in strategic collaborations with investment managers, farmland brokers, appraisers, and agricultural experts to optimize their land purchases. These partnerships enhance their ability to identify viable farmland investments by leveraging collective expertise.

There are compelling reasons to consider investing in farmland:

• The diminishing supply of farmland—1.3 million acres were lost in 2021 alone, with a steady decline of over 13.62 million acres since 2014.
• An escalating global population, projected to increase by 27% by 2050.
• Rising food demand driven by improving living standards, with forecasts suggesting a 58% to 98% increase in food demand.
• Farmland has historically demonstrated high returns, lower volatility, and serves as an effective hedge against inflation.

Traditionally, investing in farmland required a deep understanding of agricultural practices and soil quality. However, FarmTogether simplifies this process, allowing regular investors to participate without expert agricultural knowledge, thus democratizing access to this asset class.

Evaluating historical returns on farmland investments

Farmland investment has proven to be a lucrative vehicle over the decades, yielding an impressive average return of over 10% in the last 47 years. Between 1992 and 2016, this figure rose to an average of 12%, significantly outpacing conventional asset classes like real estate and the stock market.

For comparison, during the same period:

• Real estate (NCREIF) provided returns of 8.49%.
• The Russell 3000 index yielded returns of 8.8%.

You can find more insights on farmland investment returns in my farmland investing review.

Stability of farmland investments versus market volatility

Farmland has demonstrated remarkable stability compared to more volatile asset classes like stocks. The diversification offered by farmland investments can help protect portfolios from market fluctuations. For instance, in 2022, farmland investments significantly outperformed both the stock and bond markets.

According to Morningstar, the standard deviation of the S&P 500 Total Return index over the past 15 years is approximately 13.5%, while the NASS cropland total returns exhibit a much lower standard deviation of just 6.7%.

Asset correlation analysis reveals that farmland investments have low correlation with other asset classes, making them a valuable addition to a diversified investment portfolio:

• Correlated with real estate: 0.549
• Negatively correlated with bonds, emerging markets, gold, and cash.

The availability of farmland in the investment landscape

The U.S. farmland market represents a staggering $2.7 trillion opportunity. This is particularly significant when compared to the global real estate market, which averages around $8.5 trillion in professional management.

With a substantial portion of farmland ownership shifting due to the aging farming population—averaging 60 years—there's a significant potential for investment opportunities as many farms will soon change hands.

Understanding the farmland market dynamics

While farmland investing is still a nascent concept for many, it is gaining traction among savvy investors. A study by Value Advisors indicated that the number of funds focused on food and agriculture investments grew from 38 to 446 between 2005 and 2017, representing over $73 billion in assets.

Institutional investors, such as the Ontario Teachers’ Pension Plan and prominent figures like Michael Burry, are now allocating significant capital to farmland, reflecting a growing recognition of its potential.

The role of farmland in portfolio diversification

Investing in farmland provides a unique hedge against inflation, especially given the shrinking supply of available land and the increasing global food demand. Farmland acts as a tangible asset with intrinsic value, appealing to investors seeking stability and long-term growth.

Identifying potential risks in farmland investment

Like any investment, farmland carries inherent risks. Common pitfalls include overpaying for land and misunderstanding local lease rates, both of which can lead to disappointing returns. FarmTogether mitigates these issues by employing conservative underwriting practices and collaborating with experienced farmers and farmland investment managers.

A widespread misconception is that farmland is inherently volatile due to fluctuations in crop prices. However, at FarmTogether, most investments focus on leasing rather than operating the land, which significantly reduces exposure to short-term pricing risks.

Why farmland shows less volatility

Farmland investments are often perceived as stable compared to traditional investments. Just as a landlord's rental income from a commercial property is unaffected by the price of the goods sold within it, farmland investments can provide consistent returns regardless of market volatility.

Long-term crop prices do influence returns, so it is crucial to trust FarmTogether's expertise in selecting appropriate crops. They provide detailed insights and forecasts on the markets they target, helping investors make informed decisions.

In addition to educational resources, FarmTogether hosts regular webinars to address investor inquiries, making it easier for those new to farmland investing to understand the market dynamics.

Internal diversification among crop types

Investing through FarmTogether allows you to focus on specific crop types rather than general farmland. This targeted approach ensures that you can hedge against adverse weather conditions that may affect certain crops.

FarmTogether’s investment strategy involves diversifying across various crop types, such as:

• Orchards (e.g., apples, cherries)
• Leafy greens (e.g., lettuce, kale)
• Row crops (e.g., corn, soybeans)

Such diversification helps mitigate risks associated with crop-specific challenges, providing investors with a more balanced portfolio. Additionally, FarmTogether’s team members have a vested interest in the success of the investments, ensuring they are diligent in selecting stable land offerings.

Building partnerships with farmers

FarmTogether not only collaborates with industry experts but also actively partners with farmers. By establishing strong relationships with farmers, they ensure a steady pipeline of reliable lessees for the land they purchase.

FarmTogether’s model provides farmers with capital for expansion while offering investors a stable return on their investments. This synergistic approach fosters transparency and enhances land management efficiency, setting it apart from traditional investment models that often prioritize property acquisition without established rental agreements.

The evolution of farmland investment strategies

Historically, farmland investing was limited to high-net-worth individuals due to the substantial capital required and the complexities involved in managing agricultural operations. However, FarmTogether has transformed this paradigm by lowering investment barriers and creating accessible opportunities for a broader audience.

Investors can now engage in farmland investments with minimum investments that significantly reduce entry costs compared to traditional farming investments.

Investment requirements with FarmTogether

FarmTogether presents three main investment products:

• Crowdfunded offerings: Minimum investment of $15,000.
• Bespoke offerings: Minimum of $3 million for permanent crop offerings and $1 million for row crop offerings.
• Sustainable Farmland Fund: Minimum investment of $100,000.

To invest, individuals must qualify as accredited investors, which generally requires an annual income of $200,000 (or $300,000 for married couples) or a net worth exceeding $1 million, excluding the primary residence.

Understanding fees, taxes, and regulations

The fee structure varies based on the specific properties, with most deals carrying a one-time 1% expense reimbursement fee and an annual management fee of 1%. Investors can expect net returns ranging from 6% to 13%, after fees.

Tax obligations for accredited investors involve reporting income on Schedule E of IRS Form 1040, with capital gains tax applicable upon the sale of any profitable land asset. FarmTogether provides electronic K-1s to facilitate tax reporting.

FarmTogether operates as an Exempt Reporting Advisor under SEC regulations, ensuring compliance and transparency in their operations.

Future prospects for farmland investment

As one of the oldest yet increasingly relevant asset classes, farmland investment is poised for growth. With a declining supply of arable land and a surging demand for food production, investing in farmland represents a logical and strategic choice for income generation and capital appreciation.

Exploring the opportunities available through FarmTogether can provide valuable insights into this evolving investment landscape.

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