Last week I found a couple of articles about investing in farm land; one from Climateer Investing and the other at Deal Book. This is a subject that we’ve explored in some depth over the years. It is fun to learn about new investment niches and look for ones that can deliver on the promise of somewhat steady, uncorrelated returns.
There are a lot of farming stocks traded on foreign exchanges, a couple of easily traded ADRs for companies based in Latin America, recently there have been a couple of US REITs that have been listed. Global X had an ETF that it has since closed that appropriately enough had the ticker symbol BARN.
The appeal is simple; steadier, uncorrelated returns (repeated for emphasis). That description can potentially apply to all sorts of market segments that we’ve looked at over the years; fisheries, toll roads, airports and so on. Each individual can decide for themselves whether they deliver enough on that potential/promise to justify buying.
While I believe small allocations to these niches can be suitable for the right type of investor they are not for everyone and there is also a crucial point of understanding which is that when you buy the stock of a farming company you are buying shares and not the farm land itself.
Farming has evolved to include more science to increase crop yields. This includes growing different crops on the same piece of land from year to year along with giving a piece of land a year off. We all know what a controversial topic seed modification is these days but that is also about trying to enhance yields.
It is easy to believe that the ups and downs of the business of all of those things on a farm would look nothing like the up and downs of the stock market. Also it is easy to believe that the demand profile for crops looks different than that of products produced by most stocks in the stock market.