Despite cooling inflation, investing in farmland remains an excellent way to hedge against higher prices. That’s because it’s a real asset that does well in periods of inflation and over more extended periods because of ongoing food scarcity issues.
According to Barron’s reporting, the 25-year average annual return for farmland through March 2021 was 11.2%, 160 basis points higher than the S&P 500.
As they say about land, “They’re not making it anymore.” And, in the case of farmland, it’s shrinking every year. For example, between 2002 and 2022, approximately 11 million acres were lost to development in the U.S. Add in the amount of food that will need to be produced in the next 30 years to meet the growing global population and it seems unlikely that farmland will lose much of its value. Demand and increasing scarcity are a recipe for higher prices.
One of the easiest farmland investment strategies involves buying stocks in agriculture-related businesses such as combine and tractor makers. While it’s not betting on farmland directly, these companies are pulling for farmers to be successful because that leads to future equipment purchases.
There are also some real estate investment trusts (REITs) and exchange-traded funds (ETFs) that offer ways to play the farmland demand.
Here are three of the best ways to invest in farmland without owning it.
|MOO||VanEck Agribusiness ETF||$77.11|
Gladstone Land (LAND)
Gladstone Land (NASDAQ:LAND) is a farmland real estate investment trust. It owns more than 115,000 acres of farmland across 15 U.S. states. The REIT’s top three states for acreage are California (34,844), Colorado (32,773) and Florida (22,606). In total, it owns 169 farms and 689 parcels of land.
LAND, along with fellow REIT Farmland Partners (NYSE:FPI), is the most direct way to own farmland other than to buy your own farm. Both REITs are valued between $500 million and $600 million, so it’s a very intense competition.
In 2023, LAND is down nearly 14%, while FPI is down around 9%. Gladstone has also underperformed Farmland Partners on a one-year and five-year basis.
Yet, I like LAND because it focuses on family-owned farms and purchase prices between $2 million and $50 million, which is generally too small for most institutional investors. It structures the sales so the farmers can lease the land if they want or take shares in its operating partnership to provide for a tax-free exchange.
Family farms are the lifeblood of U.S. agriculture, and Gladstone provides a way for farmers to exit with money in the bank.
Since Gladstone’s IPO in 2013, it’s paid out $6.21 in total monthly distributions. It currently yields a healthy 3.5%.
In March 2022, I recommended automotive manufacturer Stellantis (NYSE:STLA) as one of seven stocks to buy for the coming risk-on rally. I’d been tempted to go with Exor (OTCMKTS:EXXRF), the Agnelli family’s holding company.
In addition to owning 14% of Stellantis, it also owns 26.9% of CNH Industrial (NYSE:CNHI), the maker of agricultural equipment under the Case and New Holland brands (hence CNH). In 2022, CNHI accounted for nearly 17% of the holding company’s gross asset value.
While Exor only owns 27% of its equity, it holds 43% of the votes, giving it a strong voice in what happens to the company in the future.
In the first quarter, CNH Industrial saw revenue increase 17% year over year, excluding currency fluctuations, to $5.34 billion. Adjusted net income of $475 million was 26% higher compared with a year earlier. For 2023, it expects sales to increase by 9.5% at the midpoint of its guidance and free cash flow of $1.4 billion.
By buying Exor, you’re getting exposure to CNHI as well, as a diversified portfolio of investments beyond agriculture.
VanEck Agribusiness ETF (MOO)
MOO’s top 10 holdings include CNHI in the eighth position with a 3.65% weighting. Its larger competitor, Deere & Co. (NYSE:DE), is the third-largest holding at 7.45%. Other names include Zoetis (NYSE:ZTS), which develops animal health products for companion and work animals, and Corteva (NYSE:CTVA), an agricultural chemical and seed company.
Since its inception in August 2007, MOO has delivered an annualized total return of 6.43% through April 30.
If you’re the type that likes to invest beyond America’s borders, you ought to pick MOO. Of the $1.1 billion in net assets, a little more than 52% is invested in the U.S., with the rest in places like Germany, Canada, China and other countries with strong agricultural economies.
Finally, MOO yields a reasonable 2.2%.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.