June 26, 2023

Contributed by FarmTogether

The current economic environment highlights why now is an attractive time to diversify into assets with historically strong risk-adjusted return profiles. Meanwhile, as the world grapples with the pressing challenges of food security, the demand for innovative financial solutions in agriculture has never been more evident. 

Against this backdrop, FarmTogether’s Sustainable Farmland Fund has emerged as an attractive avenue for individual and institutional investors seeking assets that can help insulate against market volatility, while helping to meet climate risk mitigation targets.

Through FarmTogether’s evergreen Sustainable Farmland Fund, investors can access a diversified portfolio of U.S. farmland through a single allocation, in turn gaining access to a historically stable, uncorrelated asset class that was traditionally exclusive to large-scale investors. Since launching the Fund in 2022, we’ve raised more than $10 million in committed capital from investors.

On the heels of the one-year anniversary of the launch of the Sustainable Farmland Fund, let’s take a look at the Fund’s core objectives and the targets FarmTogether has hit over the last 14 months.

Diversified Access – A Portfolio Update

The Fund’s first acquisition, Stanley Pistachio Orchard, was completed in September of 2021. This property is located along the Sacramento River in Northern California and has seen strong performance to date – according to the most recent third-party appraisal, the property appreciated 8 percent in the first 15 months.

The Fund recently acquired two additional properties, the most recent being Centennial Farm in Colorado. We closed on this property in March of 2023, diversifying the Fund beyond California and introducing row crops into the Fund’s holdings. We acquired Silver Lining Citrus Orchard, located in the heart of California’s Citrus Belt, in January of 2023. 

These additions are well-aligned with both our commodity and geographic diversification targets. Roughly 70 percent of the Fund’s acreage is in tree nuts (pistachios), 20 percent is in citrus (mandarins and navels), and 10 percent is now in row crops (corn and soybeans). Our particular focus on higher-value, permanent crops is based on one of the Fund’s key objectives to make an annual net distribution of 4-6 percent. We believe that these properties can provide stronger opportunities for both income and capital appreciation, as this sector continues to grow to meet shifting global consumer demands. 

Our team continues to seek opportunities that meet the Fund’s targeted diversification goals, including in Washington and the Upper Midwest, as well as Oregon, Arizona, and Oklahoma. 

Tapping Into a Resilient Asset Class

Despite the challenges posed by the global pandemic and other economic events, farmland as an asset class has shown remarkable resilience. In 2022, the NCREIF Farmland Index outperformed most major assets by a significant margin; farmland offered returns of over 9 percent, while real estate returned just 5.5 percent, the S&P 500 Total Return Index returned -18.1 percent, and the Barclays Aggregate Bond Index returned -13 percent. 

This stability extends far beyond the past few years – farmland has experienced net positive growth each year since 1992, averaging 10.71 percent in total annual returns. This outpaces real estate at 8.39 percent, equities at 9.58 percent, and bonds at 4.74 percent, according to research by our firm using index data from above. Farmland’s stability can be attributed to strong commodity markets and stable land values; average cropland values are currently sitting at a record $5,050 per acre, up 14 percent from 2021.

Through our Fund, we hope to increase both ease and accessibility for investors seeking long-term exposure to farmland’s historically attractive risk-return profile. That’s why we opted for an evergreen fund structure – evergreen funds provide some limited flexibility to redeem your interests while enabling both new and increased commitments throughout the fund’s lifetime. Without an end date, and with the added ability to raise more capital, our portfolio management team can prioritize long-term capital appreciation for investors.  

While we underwrite our properties assuming a 10-year hold, we understand that for many investors, this may be the first time they are investing in farmland. As they become more familiar with the asset class, the evergreen structure enables these investors to increase their allocations. Conversely, if an unexpected financial need may arise, our quarterly redemption window can provide some limited liquidity. 

Driving Sustainable Agriculture

In January 2021, FarmTogether was proud to announce the launch of our partnership with Leading Harvest, an innovative nonprofit organization and industry leader in sustainability. The Leading Harvest Farmland Management Standard identifies sustainable farming practices, which require awareness and appropriate use of regional agricultural best management practices to advance sustainable agriculture. Across our portfolio, our team seeks farms that prioritize environmental stewardship, water biodiversity preservation, and regenerative techniques when applicable. 

Our management practices are audited and verified sustainable against the Leading Harvest Farmland Management Standard on an annual basis – the audit for 2022 has just been completed. 

One of the key pillars of FarmTogether’s Sustainable Farmland Fund is our commitment to these sustainable farming practices. Our Fund actively seeks out farms that embrace sustainable land management practices, such as organic farming, cover cropping, or drip irrigation. By embracing these methods in our sourcing, due diligence, and on-farm management, we seek to help farms become more efficient. This not only helps to ensure strong long-term values for our investors but also contributes to mitigating the environmental impact of agriculture. 

A Look Ahead

Farmland is becoming increasingly attractive as institutional investors look to rebalance their portfolios in response to changing market conditions. Today, farmland funds, which manage roughly $42 billion in assets, capture 30 percent of the total AUM of all food and agriculture funds globally. 

Despite this outsized concentration in farmland, however, institutional investments still account for a small percentage of the total market. In the U.S., institutional investors own just 2 percent of the country’s 900 million acres of farmland – which sits at an estimated $2.9 trillion in total value. 

Looking forward, we remain committed to our mission to tap into this vital asset class, bringing institutional-quality farmland opportunities to more investors. 

*This communication is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation, or needs of any investor. Historical data is not indicative of future results and may not reflect fees which may reduce actual returns. Any historical information is illustrative in nature and may not represent future results, therefore any investor investing through the FarmTogether platform may experience different returns from examples and projections provided on the website. You should not make investment decisions based solely on the information. 

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