Shownotes
What happens when an overlooked asset becomes essential? Artem Milinchuk returns to share how farmland, long seen as niche... is quietly stepping into the center of long-term portfolios. He and Niels discuss what’s changed since 2020: rising inflation, tighter capital, a demographic handoff reshaping land ownership, and how tech is altering both the economics and culture of agriculture. This isn’t about chasing yield. It’s about owning what endures. From almonds to avocados, tariffs to treasuries, and legacy to liquidity, this episode offers a clear-eyed look at an asset class rooted in necessity, and poised for relevance.
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Episode Timestamps:
02:24 - A recap on our previous conversation
06:22 - What has changed about their strategy since our last conversation (in 2020)?
10:28 - How does farmland investing actually generate income?
12:32 - How does farmland investing work and operate?
15:28 - Geopolitical volatility - How FarmTogether deals with tariffs
19:00 - How different types of crops carries different types of risk
23:22 - A deep dive into the volatility behind farmland investing
27:40 - What is a fair level of volatility to expect from farmland investing?
30:49 - The tech side of agriculture - where are we heading?
33:58 - Major changes in agriculture on the horizon
40:22 - How much money has been allocated to farmland investing today?
41:58 - Are institutions sleeping on farmland investing?
43:40 - Liquidity and fees - what can you expect from farmland investing?
46:00 - Sustainability and profitability - 2 sides of the same coin
49:08 - How FarmTogether deals with drought and limited water supplies
52:26 - How political pressure impacts agriculture
56:12 - Are we entering an agricultural supercycle?
58:56 - How the billionaires are approaching farmland
01:00:26 - The most important question(s) to ask in farmland investing
01:03:59 - The biggest challenge for family offices today
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Transcripts
I’m certainly about the future. Why are tech stocks or crypto more volatile? Because we still don't know what they are, Right? Like, you still go, oh, okay, this is everything… This is nothing.
With farmland, you don't have an uncertainty about what this asset class is. Until we are AI robots living on Mars, we're going to have to eat. And you can only produce food with farmland, so there's just like inherently less uncertainty about what this asset is.
Intro:Imagine spending an hour with the world's greatest traders. Imagine learning from their experiences, their successes and their failures. Imagine no more. Welcome to Top Traders Unplugged, the place where you can learn from the best hedge fund managers in the world so you can take your manager due diligence or investment career to the next level.
Before we begin today's conversation, remember to keep two things in mind, all the discussion we'll have about investment performance is about the past, and past performance does not guarantee or even infer anything about future performance. Also, understand that there's a significant risk of financial loss with all investment strategies. And you need to request and understand the specific risks from the investment manager about their products before you make investment decisions. Here's your host, veteran hedge fund manager, Niels Kaastrup-Larsen.
Niels:Hey, everyone, and welcome to another edition of Top Traders Unblock, where today I'm rejoined by Artem Milinchuk, who is the founder and head of strategy at FarmTogether. And today we are continuing a journey that started about five years ago when Artem joined me for the first time for what turned out to be a very interesting look into what was truly an alternative investment back then, but perhaps today may be regarded as much more of a mainstream, if I can call it that.
But first off, Artem, it's really great to have you back on the podcast. How are you doing?
Artem:Doing great, thank you. How are you?
Niels:Doing very well, here, in the summer of Switzerland. What's the summer like where you are? I think you're on the west coast, right?
Artem:Yeah, it's. It's cool and foggy and windy. I am in San Francisco, so, as you know, Mark Twain said, the coldest winters I've ever had are the summers in San Francisco, and it certainly is true.
Niels:Fantastic. Good stuff.
because back when we spoke in:But before we get into all of that, let's go back a little bit, for those who may not have heard our first conversation, which by the way, you really should. And therefore, I looked it up and you can find it by searching for TTU113 or FarmTogether in the search box on the TTU website. So, I hope you will do that as well.
But anyways, give us a brief introduction or reintroduction to FarmTogether, farmland investing, and maybe just a little bit of, you know, what you saw initially back then that led you to set up FarmTogether in the first place.
Artem: ls, I started FarmTogether in:And I was really surprised and amazed that this big asset class, farmland, was still largely unknown even to the very innovative and forward looking investors up in Canada. And of course, now, almost 10 years later, this has changed.
But for someone coming from, as actors would say, a classically trained background, so, a classically academic background on investing, I always focused on the long-term portfolio centric approach to investing. And what it means is it's really hard to consistently outperform the market to be the best trader.
Really, most people, they invest not to make money (which is kind of funny to say), but they actually invest to meet their financial goals or their life goals, which comes in the form of making money. And in order to achieve that, the best way to do it is to have a long-term diversified portfolio.
And farmland is a really good addition to that because it's uncorrelated. It has historically delivered really strong returns. It has done it with low volatility, lower than S&P 500.
And it does especially well in periods of inflation, which is something that, I think we both will agree, is front and center as the key risk of the next few years, maybe the next decades, because the United States keeps printing money. And things like gold, bitcoin, the reason they're rallying, I think, is because people are really worried about inflation.
why I started FarmTogether in: Niels:Yeah, I mean that's a great achievement. Congratulations.
Now, I want to kind of go through the initial part a little bit quickly because as you say, there's so much interesting stuff that we can dive into. So, maybe one way of doing that would be kind of saying what's changed since your last appearance in terms of maybe evolution of your strategy. You mentioned a bit of scale, of course, maybe some macro and then we can dive into to some of these more deeply as well.
Artem:Yeah, absolutely. So quite a few things have changed. Certainly, the world keeps changing. From the company's perspective, one is we now have a fantastic new CEO, David Gould.
David is a Wall Street veteran who previously worked for hedge funds, for example Elliott Associates, which got really famous when they were investing and then later on recouping investments in Argentina. So, a very sophisticated hedge fund.
David also has a significant agricultural background, having been with companies like Amera, which is one of the oldest, largest ag funds. And he was at Cargill.
So, he brings a wealth of ag and finance experience to the company and has really matured the way we are positioned and the way we do business with institutions and individuals. So, I think that's been phenomenal.
The rest of the team is great. So, we’re really well set up there from a technological, from a team perspective to continue to find and invest in the best farmland assets.
Now from a macro perspective, as we all know, we have now much higher regulatory and political uncertainty. We have a high uncertainty around tariffs. When you look at, you know, not the vibes, but like objective measurements, I think this is the highest it's been in terms of uncertainty since like the ‘60s.
So, we're certainly in a high environment of uncertainty and we are in a regime of higher interest rates, higher 10-year treasuries, and of course farmland. For a lot of folks, they view it as sort of treasury plus or a real estate type product, or a bond plus type product. We are competing against 10-year treasuries. But everyone is, right? Everyone is competing against the 10-year treasuries.
And so, I'm happy to report that even though underwriting not only hasn't changed, but actually has gotten even more conservative, where we really want to make sure that the target IRRs we put in front of our investors we can hit, we are comparatively showing lower returns versus a few years ago when there was treasuries in 1% and 2%.
But despite that, we're still getting a lot of demand. We're syndicating new deals. We actually have a live deal, on the platform right now, at Mandarin Orchard.
And that's because I think fundamentally folks still want to be invested in high-quality long-term assets and what I talked about earlier, inflation protection. So, we are still very much launching and syndicating deals. I would say those are the main kinds of differences.
Niels:Yeah, I was going to pick up on one thing just so people fully understand, and correct me if I'm wrong here, but that's really what you started out doing was syndicating deals and finding specific farms. But you actually also, today, run a fund whereby you make the selection and you kind of run that, which I may allude to that later on. But is that correctly understood?
Artem:That's correct, yeah. We have different investment products for different audiences and one of them is a more traditional open-ended fund.
Niels:Okay, fantastic, good stuff. Now again, I'm just covering some of the basics here, Artem, so bear with me. When people hear farmland investing, they may not be as familiar with it as some other types of investments, but maybe you can very briefly, again, just describe what are the main sources of “income”? How do you actually make money when you buy a farm, so to speak, if you're an investor going into a syndicate or if you're investing in a fund that invests in farms, how does that actually what are the main drivers of revenue for you?
Artem:Most people don't know about farmland investing, so you're absolutely right. So, we always try to use some sort of comparison to other asset classes that people may understand better. One of those asset classes is real estate. So, farmland, to some extent, is like real estate. What it means is that you have two sources of returns ultimately.
One is land appreciation. In the last 50 years, in the United States, land has appreciated on average by 5.9%. Now, of course, on every deal we assume different types of appreciation based on the price at which we buy.
Have we bought below comparables and the long-term appreciation of land in that area based on historical productivity, inflation, and other factors? And that's roughly half of the return.
And the second half comes of course from dividends. And the dividends come from the land producing goods, almonds, pistachios, selling those goods and paying out a dividend based on the profit of that year. And that can vary.
Some deals we do actually a rental model. So, very much like real estate where the farmer rents, it's a fixed or like a fixed plus rent and some deals we direct operate, meaning that you as an investor have full P&L exposure. And if the farm does well, you know, you get a good dividend. If a farm doesn't do as well in a particular year, you know, your dividend may be below zero.
Niels:So, like a private equity type of investment, really?
Artem:A little bit, yeah.
Niels:A little bit like that. Okay, fine, cool. One more basic question here, Artem, because I think when I kind of try to read up a little bit and refresh my mind from our first conversation, one thing that I think also is, things to maybe to understand a little bit about, that there are, of course, different types of crops that you can invest in. And I think a lot of people just think, well, farmland is either wheat or soybeans, but there's a lot more.
And there are a few nuts and fruits as well, in between. And maybe also the final thing I wanted you to just to give you a little bit of an overview, for the audience, is also a little bit about location. I mean, you're based near the coast, you said, but I guess there are farms in the mountains. There are farms in flood areas or whatever, river areas. How does that all tie in?
Artem:In terms of crops, we focus on what's called permanent crops. And this is your tree nuts, your fruits, your citruses. They're called permanent because they grow on trees. So, once you plant them, you just harvest them every year. This is opposed to what's called annual crops or raw crops, although all crops are grown raw, mostly.
Niels:True, true.
Artem:So, I don't know where that distinction came from. So, this is your corn, soybean, wheat, and we do have some of that as well. But you have to plant them every year.
And in terms of geography, yes, we focus more on the West Coast: California, Oregon, Washington. California especially is just a breadbasket or nut basket of the world.
The climate is very unique. You have the Mediterranean climate. You have also access to the Pacific Ocean, through which you can export globally. You have a fantastic network of dams and canals to deliver the water.
And you have a tremendous density of talent and productivity that makes California, if it was a country, the sixth largest ag producer in the world. And so, you know, you get a lot of headlines about California politics, obviously, but also droughts, floods, fires, whatever. It's a big state and it's nothing new to the farmers.
So, when we invest (you talked a bit about, like, mountains and flooding), really, we underwrite, I think, extremely well. We look for a good water, we look for good locations. And it's areas that have been producing for generations, centuries, I don't know.
So, I would really not worry too much about what you read in the newspapers because it makes for sensational headlines, but not really.
Niels:I completely agree.
But anyways, speaking a little bit of what is in the headlines, and one thing that people listening to, to the podcast really do like to follow and learn about is, of course, the world of politics, geopolitics, macro factors that impact how they should think about their investment. And we are, of course, big supporters of diversifying our portfolios to mitigate some of those risks.
So, I'd love to dive into some of the kind of the macro/geopolitical topics that are sort of going on right now and which definitely, you know, weren't happening last time we spoke.
So, I mean you already mentioned tariffs. So, I'd love for you to maybe talk a little bit about that geopolitical volatility, other things in that kind of area of topics that you come across that people might be interested in concerned about, and what you take into account. Really, give us some insights to how you, when you look at farmland investing, deal with things that you don't normally associate maybe with farmland investing in the first place.
Artem:You know, look, that’s a great question. One is we already have gone through a tariff period during Trump's first administration and during Biden's administration. So, this is, again, nothing new to farmland.
So, there are a few ways that we think about and mitigate tariffs, one is that our deals are 10 year plus in terms of target hold period. And that's because whether it's weather, pricing, tariffs, really you need to give a full cycle for your farmland investment to play out.
You'll have good years, you'll have bad years, overall, though. And NCRIEF Farmland index has delivered 10+% in the last 30 years. So, all in all, it kind of shakes out.
Now secondly, we do still want to have tailwinds when it comes to tariffs and global policy. So, one is we invest in crops that are not as exposed. So, for example like apples are fairly domestic, citruses are fairly domestic consumption. So, it's not as export dependent. Almonds are more export dependent. But since the last trade wars there's been really positive realignment of trade flows. And so, again, that's what I mean, it all shakes out in the end.
So yeah, look, it's a headwind but one is I'm kind of optimistic, positive that a lot of this stuff will get resolved because it's just not good for anyone. And then, yeah, secondly, some of it might even be positive. So, for example, avocados, a lot of them come from Mexico. When there are restrictions on Mexican avocados, you know, the California avocados do better.
And also, a broader point is, that's why we really encourage people to build a diversified portfolio of farmland or invest in our fund, because ultimately one particular crop may have a good period, bad period. But we think that investing in diversified portfolio farmland will give you a more broad exposure and less exposure to specific risks.
Niels:So, I might be jumping ahead in my own questions here, but I'm just curious, when you talk about it like that. Is there such a thing where you could say, yeah, row crops might yield higher returns over time, but they come with higher volatility, higher risk than say, you know, permanent crops, like you mentioned? And even within permanent crops, are there distinctions between, you know, one type of food, essentially, in terms of risk and reward?
Artem:Yeah, so that’s a great question. Row crops typically come with lower returns and lower risks. But right now we're talking a cash yield on cornfields that is 2%. So, you really are better off… Oh, I shouldn't say that. But you know, a lot of folks, they will look at treasuries and say, man. So permanent crops have high return, higher risk.
And then within that, I wouldn't say there's as much like specific crop risk. It's more the way we think about it. We, again, use this real estate analogy and we think about as core plus and value add categories of investing in the permanent crop space. And so, the risk is, but also has, potentially, the highest return. It's a direct operated model; you as an investor own the farm and we operate it fully.
And then as you decrease in risk, you go into revenue share, profit share, fixed rent, almost, where typically you would have lower returns but also lower risk. That's how we think about it.
Niels:Yeah.
Now just to finish off maybe this point about politics, geopolitics, etc., I mean, one thing when we last spoke that felt very different was the whole idea of globalization. Today you might actually say that we see signs, strong signs of much more protectionism in many ways.
And because it is a long-term investment, as you rightly point out, which of course should be for all investments. I agree with that. I mean, do you see any major changes to farmland investment from protectionism more so than just geopolitics?
Because what I don't know, Artem, to follow up on that question, is I actually don't know… I mean, you said you can invest in stuff that is more domestic consumption. But I also get the feel that, in the US, there are a lot of exports going on in certain crops. So maybe I just want to add that to it. Whether this is something that you are conscious about and actually would then shy away from certain things because of this tendency we see right now.
Artem:Yeah, it's definitely a risk. Right? And we talked a bit about in terms of how we think about underwriting. So, US exports a lot of corn and soybeans. In fact, I think ag is something like $180 billion of net exports. So, it's a huge contributor to the surplus, the trade surplus that this administration is really focused on.
And so, certainly those are the sectors that get hit by retaliation tariffs. And we've seen this, again, during the first Trump administration with China. At the same time, the US is a very strong and competitive producer of a lot of goods – so, a lot of agricultural products. In almonds, California is 80% of the global supply. So, it's a powerhouse.
The US is a really low-cost producer of corn and soybeans and the world still needs to eat. The population is growing, and they also want better, and better diets. They want to eat the same as we do, like organic, high-quality stuff.
So, it's a good question. Honestly, I don't have a great answer. It's very much dependent on a particular deal that we look at in that point in time.
Niels:Sure, that makes perfect sense.
Let's jump a little bit and use some of the words that our audience is used to listening to things like volatility, portfolio role, etc. And maybe we use the index that you kind of like to compare to when you think about farmland investing versus other types of investments. Give us a little bit of a feel. You mentioned briefly, kind of, some of the returns.
Maybe you can talk a little bit more specifically about, you know, what level of volatility this comes from, or comes with, I should say. And maybe also one thing which you mentioned, about inflation hedging, sort of what typical things you've seen historically during periods like this. Because a lot of people, of course, would say, oh, gold is a great inflation hedge.
I'm not so sure I actually agree with that. I think it's more a hedge against, you know, complete uncertainty or disaster in the world. But talk me through some of these more traditional statistics that we love to focus on here.
Artem:So, by the way, a lot of this information, also, your listeners can find on our website FarmTogether.com. We put out white papers, research. So, really like to lean into the educational aspect of our, call it marketing.
Niels:Yes, and we'll link to that in the show notes, of course, absolutely.
Artem:Fantastic. But yes, so, there's an index in United States called the NCREIF Farmland Index, which is more than a thousand properties. All the major farmland investment firms contribute to this index every quarter. It's a private index, so, meaning that it's not the S&P500. You can't really trade it. But it's the best we have right now because, again, the world of farmland investing is surprisingly still somewhat new. And so, there is a lot of, I think, alpha still to be had.
to:And so, the nerds like me, when we look at the Sharpe ratio for farmland, it's 1.09, which is really strong versus stocks at 0.44. And then what's great as well, farmland really hasn't been correlated much to anything except somewhat to real estate. And even within that, you have to sort of look at what kind of real estate, because certainly commercial real estate has fallen off the cliff, whereas farmland kept plugging along.
And then, yeah, so when it comes to inflation, basically in periods of high inflation, farmland has handsomely outperformed when we look at the historical periods. And that's because farmland is almost like, is the inflation.
So, while they tend to exclude like… inflation, excluding food and fuel. It's like, well, excuse me, I pay for food and fuel. What do you mean you're just going to exclude it? But it's food, fuel, feed and fiber. So, there are thousands of products that are actually made from the farm goods, not just the corn syrup or whatever. And see, it has done really well. And it kind of naturally makes sense.
It's interesting, by the way, what you say about gold. Yeah, I'd love to maybe hear more about that.
But yes, it's the same point about scarcity and why I think we're getting more and more crypto investors actually in farmland, which is not only they don't make it anymore - farmland, but it's also disappearing due to urbanization, due to climate change, due to rezoning and being used more for like wind and solar farms and development and whatnot. So, I think the US lost something like 50 million acres in the last couple decades. It's a huge amount. We're talking, you know, the size of the state of Massachusetts - several states of Massachusetts. So yeah, I think that's kind of like the main numbers to keep in mind.
Niels:So, pardon me for bringing up something that I'm sure you would have been asked many times, but when people hear these stats, they think, oh, this is great, you know, strong returns, low volatility. But, as I alluded to earlier, there is some resemblance to private equity because these things are not traded every month, they're not traded every day. So, people might say, well, hang on, the volatility is probably low because of lack of liquidity. What do you say to people like that?
And what would you, if it's different, what would you say is a fair level of volatility to expect maybe in some of the live deals you've seen?
Artem:Look, it's a great point and certainly within individual deals you'll have more volatility than at the broad index, obviously, I think there is some truth to it that if it was more liquid, maybe you would see more volatility, more trading. And I think, in fact, we have seen that to some extent in the two publicly traded Farmland REITs, which is Gladstone and Farmland Partners. I believe they're certainly more volatile than the underlying index.
So it's hard to say, but I think it's almost like part of the illiquidity premium or discount (however you want to put it), in our case, is that it's almost like an emotional psychological mechanism where, because it's a long term hold, people appreciate the fact that they can't exit it because there's a particular emotional thing happening.
And that's what… Look, obviously we don't give any investment advice or recommendation, but when we listen to all the greats in investing, they all say just to kind of like invest and forget, invest long-term like Warren Buffett’s love of farmland, talking about a farm I think he bought at some point. So, look, it's a great question.
I think as the index gets bigger, as that becomes more maybe like liquidity trading in and out, as everything else, things eventually all tend to get more correlated. But still, I don't think it's going to be as high as like real estate and equity and…
Sorry, Niels yeah, you caught me on my soapbox. Like a topic that I really like.
Niels:Yeah.
Artem:Philosophically, what's volatility? Right. I think some of it is flows. But some of it is uncertainty about the future. Why are tech stocks or crypto more volatile? Because we still don't know what they are. You still go, oh, okay, this is everything, this is nothing. With farmland you don't have an uncertainty about what this asset class is.
Until we are AI robots living on Mars, we're going to have to eat, and you can only produce food with farmland. So, there's just like inherently less uncertainty about what this asset is.
Niels:Yeah, I think actually that's a really great point. I'm glad we touched on that.
I wanted to pivot a little bit and talk about some of the sort of structural and thematical trends that you see in agriculture. And one thing I remember from our first conversation all those years ago, which I found very interesting because people have to realize this is five years ago. This is before AI was a thing. This is before technology and drones and all of that stuff was a thing.
I'd love for you to talk a little bit about kind of the tech side of farming today and how it's undergone, I'm sure, a big change even in the five years since our last conversation. Maybe even project a little bit where you think it might be going and then how that's going to impact farmland investing.
Artem:Yes, the tech is a fascinating part of the story. And even when I started FarmTogether, there was a lot of kind of adjacent tech vision and how we can make farming better, how we can make farmland investing better.
cool stat which is that since:And we've seen this in places like apples, for example, where there is high density trellis-based planting which produced a massive increase in yields. Typically, over long term, that yield improvement flows to the owner of land because your land is now producing better.
And so we expect that to continue. And some of the exciting new stuff is around the drones, the satellite imagery, automatic water systems - water and electricity, so you can manage better the cost of water, the cost of electricity, how much you use, and of course things like automatic harvesters and sprayers and things like that. So, a lot of what you see now in self-driving cars is going to come to farming as well.
And that's really important because the cost of labor and workers keeps going up and it's tough work. It's a tough job as well. So, there's more and more automation happening.
So, I'm pretty positive, I think, on the underwriting side. It's becoming easier for us to look through more and more opportunities to make sure that we can select the best ones. So, AI, of course, helps. Sometimes you have hundreds of pages of legal documents around title. How do you quickly analyze that?
There’s satellite imagery. Being able to quickly look and underwrite, almost like count the trees on a particular farm, and have a much more precise level of underwriting automatic models. So, right now we are very lean team, but we've been able to analyze and underwrite more and more because of the years of tech. And that's going to continue. So exciting times.
Niels:Yes.
Now, there are two stats in what I read through for our conversation today that really stood out to me, and I'd love for you to kind of maybe give it a little bit of context. We already talked about kind of scarcity. And I think that I saw a stat saying something like an expected 70% increase in food demand in the next 25 years, just due to population growth, due to shifting diets.
And then the other thing that I saw, which also had the number 70% in it, was that it is expected that nearly 70% of farmland, worldwide, will change hands in the next five years. Now, I can, of course, probably guess that demographics has something to do with that.
And I think you mentioned, I think this paper actually is from you, that the average age of US farmers is now 58. That doesn't sound very high if I think about my own age, but there we are. Tell me a little bit about these two stats. I find them staggering, maybe more so the latter. That so many farms in the world will change hands in the next five years. That's incredible.
Artem:Yeah. So, I'd have to take a look at those numbers. I do know that in the US, where we focus, we expect two thirds of farmland to change hands, but in the next 20 years.
Niels:Okay, the next 20 years.
Artem:Yeah, it might be a typo or something else - in the next 20 years, which is still relatively short.
Niels:Yeah, sure.
Artem:Yeah. And the average age, I think 58. I think it's now something like 59.6. So, it's keeping up. And that's the average. So, what it means is that you have folks that are like 70, 80 and more.
Niels:I mean, it's a great opportunity. Tou talked about tailwinds. I mean if you want to have tailwinds with you, it's kind of demographics would be one of them, right?
Artem:Absolutely. Well, look, I hope and I'm sure that when I'm 60, I'm still very, very young. 60 is the new 40, so, health care is getting better. Yeah, we're all going to live till a thousand. But yeah, it's the changing of ownership to the younger generation, Gen X, millennials, and so on.
And the new generation just thinks differently about the financial aspects of farming that typically also, not necessarily more sophisticated, maybe think about it differently, as much as maybe it pains the previous generation to hear this sometimes. But the new owners, they think about it as a financial asset.
So sometimes they'll say, okay, now suddenly I have this $5 million farm and that's my whole portfolio. Well, I want to diversify into S&P500. I don't want to have one asset.
So, there's the sale of farmland, there's refinancing, there's the how do you split ownership between siblings? Because oftentimes, for some reason, farmers have exactly three kids, two don't want to farm, one wants to farm. So how do you buy them out?
There are a lot of really interesting financial decisions being made. And FarmTogether has been able to work with those types of owners to provide them with creative capital solutions.
So, yes, when you have a change in ownership, it's typically when you look at what you have and you make a lot of different decisions on everything, Automation, what you're going to plant and harvest? Are you going to even keep it? Do you want to buy, or sell, or lease? And that's where I think a lot of our success has come from, actually working through those situations.
Niels:Yeah, it's a little bit of a cheeky question I have here, but every day I try to go for a walk, when I'm home here in Switzerland, and, you know, there are a few mountains and I pass a few farms, Swiss farms, small farms, family farms, on my walk. And when I see them, and I think about kind of succession, Wall Street is not the first thing I think of. I think of the kids, right?
And of course, some people might say that, you know, whenever Wall Street gets involved, nothing gets necessarily better. But my question is maybe a little bit different. And that is when I think about this (and I don't mean to be disrespectful to the young generation, I mean, I have kids that are just coming into the working life), but I do see tendency for kids today, not necessarily wanting to do the same kind of work that then maybe my generation and maybe even your generation would do. They seem more selective, they seem to want to do maybe less manual type work now.
Now they can sit in front of a screen and make money, in some cases. So, I wonder if that also plays a big role in the opportunity set that there simply aren't enough farms that will go down to the next generation for the simple reason that the kids don't want it.
Artem:I mean, you hit the nail on the head. That's the big reason kids want to live in the cities. It is complicated and difficult work. Although again, increasingly you see automation come into play. And so yeah, the farms are getting bigger.
Kids, if they want to keep the farms still in the family ownership, they will rent them out or we have actually done, sometimes they'll sell it to us, but they have a right of first refusal or like a repurchase, almost like a cold put option in 10 years to get it back. So, it's like this quasi rental model. But you're absolutely right, look, farming is difficult, absolutely. And so, you have the kids who love it and then the ones who don't, and the ones who don't, they look at what they can do with the assets. So, absolutely.
Niels:Yeah, yeah, very interesting. Now let's, let's pivot again. Maybe we stay with kind of the data driven part a little bit further. In terms of the total, so, we love to talk about, you know, what's the size. So, when I talk about the industry that I work in, people often think about, okay, so how big is the industry, etc. etc. Are there any numbers today in terms of how much money has been allocated to farmland investing today? I mean, is that a trackable number, so to speak?
Artem:Somewhat trackable. I think roughly like $30 billion in United States. But it's hard, right? There are some funds here and there, $30 to $50 billion, maybe roughly that number. And it's growing. But it's not growing, I think, as much as I would like, as much as the farmer investment industry would like, as much as the farmers probably would like.
I think there's still huge untapped potential because the market, the size of the farmland market in the United States is $3.5 trillion. So, think about it, we have 1% invested. Think about any other industry like real estate, I mean, whatever. So, there's still a vast ocean, a green ocean of opportunity.
Niels:Yeah.
And on top of that you could say, think about the size of the investable pool, that $30 billion, you can't even see it.
Now is the growth that you see, and of course you've had great growth since we last spoke, but is the growth you see more so from high-net-worth individuals or are institutions actually starting to take this seriously, as they should?
Artem:So, there's been some institutional interest already and some for decades, but mostly right now it's family offices, individuals and small investment advisors. For institutions, there are a few factors in play right now. One is (and look, this is, by the way, this is my personal take), there has been a lot of capital locked up in private strategists that is not getting out as expected.
fore the Covid, but certainly:But that's going to change because again, the fundamental nature of farmland and how it can help institutions match and meet the liabilities and obligations, I think it's a really strong asset class for that.
Niels:Yeah.
Now, one thing that people love to know about when they think about a new investment is, at least in my world, and that is kind of what liquidity should they be able to get, but also what are the fees that they should expect to pay. You don't have to talk about specifically your funds, but just generally what should people expect in this area of making the investment?
Artem:Yes, in terms of liquidity, as I mentioned, we view this as a long-term asset. So, our target hold period is 10 years, which by the way is not that long. There are a lot of funds that are even longer than that, whether it's VC, or infrastructure, or things like that. And our private fund only has a two-year lockup, so there is liquidity after that.
Niels:Right.
Artem:So, it's even better. And look, certainly while we understand people want liquidity so we keep working on options for that and the asset, like everything, will get more liquid. We see this in private markets, see this in crypto, whatever. In terms of fees. Yes, I can't really talk, I think for regulatory reasons, about specific fees here, but it's something that you would expect from…
Niels:I guess I was more interested in is it like a normal “hedge fund type” or “private equity type” where it's like a management fee plus performance fee? Is that how your world operates?
Artem:Yes, management fee, performance fee, we also charge a onetime fee. I would say (again, I don't want to make broad statements), I think our fee structure is actually lower than what you'd get from private equity. And we'd love to, as we expand to keep sort of, if we have more AUM, be able to have lower fees. So, to make it even more accessible to folks.
The thing is, at the same time now, this is a complicated and really intellectually and physically hard way to… like a hard asset class and there's not that many of us, so we still have pricing power on fees. There are very few ways to invest in farmland. FarmTogether is one of them.
Niels:Sure, yeah, that's true, true. Well, absolutely.
Now, one thing that has been very dominant over here in Europe, I think for a time, that's how I remember it as well, that it was certainly also on the agenda in the US but with the change of administration, it's something that has been certainly, let's call it, there's been a bit of a change of direction and I am of course talking about ESG, sustainability.
I wonder if you could talk a little bit about those trends, maybe how that impacts farmland investing specifically. I'd love to know a little bit about how that impacts your industry.
Artem:Yeah, it's really interesting because ESG went from being a must darling in 12 months to almost like a taboo word. And it's just crazy how quickly policies, politics, and sentiment changes. So, for us, we've been very pragmatic about it from the start.
So, the good thing about farmland investing is that sustainability and profitability, it's almost two sides of the same coin. Because ultimately what does sustainability mean? Well, it means that your asset sustainably produces profits for a long period of time. So, what it means is that you want the land to be productive, meaning that you want the soil, the water, the trees to be healthy long term. Well, it's just called farmland investing.
Our farm management team just laughs when someone will try to use some fancy terms, like, this is just called farming. Well, sustainability is using less water and fertilizer. That's just good business. The less water we use, the more sustainable it is.
So, we don't really care what the noise is outside. We just manage our farms to the best of our abilities for long-term sustainability. We have recently published our paper on sustainable and regenerative practices we use internally.
Niels:Okay.
Artem:And it's, again, it's very easy to understand. I encourage everyone to check it out. We are members and participants of the leading harvest standard. So, it's an industry sustainability standard. It's third parties that come and audit what you're doing. So it’s really important that it's not kind of self-accreditation, but actually external third party. So definitely…
Look, we hate greenwashing, that's for sure, I can tell you that much. And we do hope that whether it's United States, Europe, whoever, private capital it does place more value on the longer-term sustainability, regenerative agriculture, organic, because it's how we do business already. So, we'd love to be recognized for it. But until we are, we'll keep doing what's right for our investors, and also for the planet, and for the people.
Niels:Yeah, I mean you mentioned a couple of things I'd love to just ask you a little bit more about. I mean you mentioned water a few times. And I think we all know if we turn on the television once in a while, I mean, issues with water, lack of water specifically. Certainly, as you mentioned right in the beginning of our conversation, I mean California gets the headlines because of drought and all of that stuff. I mean, how do you deal with something like that? Because that's not an easy issue to fix, I imagine.
Artem:Yeah, not an easy issue to fix. And it's actually way more complex. In some ways good, in some ways bad than people realize. So maybe one just in general, California is a geographical area that goes through droughts and floods. Everyone likes to report on the droughts. I think like a year or two years ago we had too much water.
Niels:Right.
Artem:And this has been going on for thousands of years. So, this is not something new. So again, it's something that is a known unknown, call it that.
Niels:Yeah.
Artem:When we underwrite, we look for just really secure sources of water that have been available even during periods of severe drought. Typically, it means two sources of water.
Groundwater, whether it's a canal, river… sorry surface water - canal or river, and groundwater, which is wells that you put in. And so, look, that's what most of our farms have and we haven't had almost any issues with water availability.
agement Act, which is that by:We just want to be in those areas which we know and understand. And you don't invest in areas that are going to go out of business, simple as that. And then, look, the good news is that as much as kind of the pragmatic man in me, that means less supply, right, of agricultural goods. And that means the remaining farmland will be more valuable. And now investors invested in that farmland will have, again, more value in the holdings. And California will have a more sustainable long-term strategy around water.
And the last thing I'd love to say is that farmers love to say there's actually not a shortage of water in California. There's shortage of water going to the right places because a lot of it just gets diverted to the oceans. See, you can build infrastructure just like we have built in California, which is incredibly sophisticated. I mean the amount of water dams, and canals, and levies, and it's incredible, this to get more water. And there's desalination as well that gets cheaper and cheaper as energy gets cheaper to get water. So, technology is not standing in one place and there's strong tailwinds to that as well.
Niels:Now originally, I'm from Denmark. Denmark is a, certainly a farmland, to a large extent, despite its small size. And there's a lot of debate about farming in general, and its impact on the climate, and so on, and so forth. I mean just kind of looking ahead, maybe a little bit about the future. I’d love to hear your thoughts about pressures, maybe political pressures, also, depending a little bit about who's in government, who's not in government, about sort of the climate impact. And also, one thing that I feel has been trying to become much more popular, and I think it's kind of winning (to some extent at least) over here, is organic farming. I wonder what the take is where you are on these issues. I'd love to hear more about that.
Artem:Yeah, I mean I personally love organic, and we invest in organic farms. So, the short answer is we’re very bullish, and when we can get good returns on organic, we'll invest in it.
Niels:And do you feel that there's a lot of, I wouldn't say risks, but I mean, I guess it is a risk if there is maybe “the wrong administration” putting on excessive, whatever you would call it, constraints on farmers because of climate change. Or is that maybe very different in the US and it's not something that… Because we see it a lot in Europe. It's highly, highly regulated.
Artem:Yeah, I know exactly what you're talking about. Yeah. And that's fascinating to watch how, for example, like UK regulates, Denmark. No, so, in the United States (so you understand) there's this survey that goes out from time to time, which profession is the most trusted or most respected and farmers and veterans kind of like change places as first and second one. It is political suicide to touch farmers, whether you're Democrats, Republicans. So, it's a very well respected profession, rightfully so.
Of course, yeah, there are different regulations that happen here and there. What we invest in permanent crops typically is not, even within the regulatory landscape of the United States, is less regulated. So, corn, soybeans, they have subsidies, they have crop insurance. There's definitely, you know, high visibility. Less so with permanent crops.
The biggest thing for us right now that we're looking at is the new farm bill being passed. That's important. And actually, I have to check what's the latest there. But some positive developments have been return of accelerated depreciation for land development. So, now first year of expenses can be appreciated 100%. So, on a tax adjusted basis, we believe this will yield better returns for our investors. Again, this is not tax advice. Consultant a tax attorney.
And yes, like regulatory uncertainty. I think the biggest one for us is obviously tariffs, other stuff, sort of regulating around climate change. Now, like with this administration, I definitely don't see anything even with the future ones. And some of it, again, is just going to come back to profitability and economics. If electric tractors are just better, we're going to use them.
Niels:Maybe just sort of rounding up a little bit, trying to tie it back a little bit to my world, so to speak. A number of the guests that we've had on, that come from the kind of the commodity sphere, have talked about like commodity super cycle. And, of course, they may not think so much of food, they may think more of oil, whatever, copper.
If you were to think about a cycle, because I also remember that… and this was obviously as a result of what happened in Ukraine where obviously they are one of the big producers of wheat, I believe it is, and the risks to that and we saw prices move significantly higher. Since then, they've kind of come off as far as I can remember. But is there such a cycle, pricing cycle in the food areas and, if so, where do you think we are in this? Because I imagine talking about tailwinds and headwinds that it is nicer to be in that super cycle when it comes to rising prices of your crops than not. So, I'm just curious about where we are in that.
Artem: ies background. I remember in: Niels:Yes.
Artem:We had massive run ups in commodities. China was building. Honestly, this is such a great question. I'll have to go back and research because right now I don't know. And our team, we constantly monitor the macro but I think we just get like so focused on specific deal underwriting maybe a specific crop.
So, there are cycles. I don't know about a super cycle. I would say, look, one is inflation, right? I think that one is definitely part of the super cycle. And farmland food, I believe, is a good hedge.
We have some structural trends. For example, you know, the Dubai chocolate, there’s a huge demand for pistachios because the TikTok kids love Dibai chocolate which is full of pistachios.
Niels:I did not know.
Artem:Yeah, yeah. You get trends like almond milk becoming the flavor, things like that. But yeah, so, the short answer is I don't know if we are within a super cycle right now. I just want to say that within the stat you quoted, we'll need 70% more food. And demand is growing, not just in quantity, but in quality. And the US produces high quality food. That's the tailwind.
Niels:Yeah, yeah, that's great, that's absolutely great. Now, maybe just a final question or two, Artem, just a little bit of fun. But I was kind of curious. The world is changing a lot. And you hear, or you read in the news (and of course we should never trust what you read in the news), you hear about, you read about a lot of these… the billionaires have kind of bought and built bunkers in New Zealand to go to a safe place.
And as far as I remember last time we spoke, I thought we talked about someone like Bill Gates buying up a lot of farmland in California. What's the latest trends among the (in lack of a better word), the rich and famous. What are they doing with their money in farmland?
Artem:Yeah. So, Bill Gates did buy a lot of farmland all over the United States.
It's actually still like a tiny portion of both total farmland in the US and his wealth. And it's really, I think, just when we talk about diversification, long term investing… Overall, look, it's hard to say because they're very private billionaires, but there's a lot of (and it's public stats) Bill Gates is not even like the largest farm owner, I think. There are a bunch of other ones. Yeah, the answers is, I don't know.
Niels:Okay, that's fair, that's fair. That's a little bit of a left side question there.
Maybe one last question, and that is if you were looking, considering investing in farmland today, what would be one or two questions that you would always ask of the firm you were looking to do business with? What are really important questions to look for or ask for?
Artem:Look, I think in any business, but especially in farmland, the track record level of experience is super important, and it's such a… Like I feel I'm still scratching the surface of such a fascinating market. It's intensely intellectual. You need to understand so many things. At the same time, it's also very people driven business.
A lot of the best deals we get are because we're in the track with the farmer. And there is a lot of hard work to make sure that the farm performs, but it's also very rewarding. So yeah, it's just who are the people and how long have they been in the business? That's probably number one. That's the biggest one.
And then number two, maybe it's a little bit about the cycles but it's just understanding that even the S&P500, it's hard to time the market. So, just say, if I were investing (this is actually how my personal portfolio is in farmland), different crops, different geographies, different structures, building a diversified long-term portfolio, that's how I'm building FarmTogether. I want us to be the partner of choice for people that want to build a long-term, life generational farmland portfolio holding. Because good farmland, I mean, it's going to produce forever.
Niels:Sure, absolutely, absolutely. I mean, this is really great. I so appreciate your time, and I found it very fascinating to revisit this area. Clearly as people can hear, this is not my strong side but I am fascinated by it and, of course, I am a strong believer in diversification of portfolios. And I think with a world that changes, hanging on to things that will never change (and I think we can say farmland will probably never change, just like some of the things that I feel that I deal with), is so important, and finding that or building that robustness in an overall portfolio.
So, although my question list was a lot longer, I know we have some constraints on time, but I also know that people can go to your website FarmTogether.com and read up on all the white papers you've written and follow along and maybe the question about cycles will be “food for thought” for a little new white paper at some point - Farm Investing in a Super Cycle. You never know. But this has really been a fascinating journey.
I’m grateful for your time. And maybe before we go, is FarmTogether.com the best place to send people or is there somewhere else they can go?
Artem:That’s perfect.
Niels:Super duper, and of course, you've actually been on many podcasts I know, so there are plenty of places people can go and listen if they didn't get enough in our conversation today and also in our first conversation five years ago.
obal Family Office report for:So, I truly hope that some of our Family Office listeners today will have been paying close attention, and may be inspired to look more closely at what you do.
On that note, we're going to wrap up our conversation. Artem, again, thank you so much for coming back to the podcast and for sharing your updates. I really enjoyed learning more about it and I'm sure our audience will do as well.
And to all of you listening today, I hope you'll take something away from today's conversation onto your own investment journey. And if you did, please also share this episode with your friends and colleagues and send us a comment. Let us know what topics else you want us to bring up in these conversations.
From me, Niels Kaastrup-Larsen, thanks for listening. I look forward to being back with you on the next episode of Top Traders Unplugged. And in the meantime, go check out the show notes for this episode and all the resources that you can find on our website. Until next time, as always, take care of yourself and take care of each other.
Ending:Thanks for listening to Top Traders Unplugged. If you feel you learned something of value from today's episode, the best way to stay updated is to go on over to iTunes and subscribe to the show so that you'll be sure to get all the new episodes as they're released. We have some amazing guests lined up for you. And to ensure our show continues to grow, please leave us an honest rating and review in iTunes. It only takes a minute, and it's the best way to show us you love the podcast. We'll see you next time on Top Traders Unplugged.
