PodcastThe Monetary Matters NetworkChris Morris

The Ultimate Hard Asset: American Farmland and The 300-Year Water Supply Hidden Underneath It

The episode delves into the critical intersection of farmland investment and water resource management, highlighting the implications of water scarcity and geopolitical tensions on agricultural assets. As nations prioritize resource security, farmland emerges as a vital investment, particularly in regions like the Midsouth, where water availability is projected to decline. Additionally, advancements in technology, such as AI in agriculture, are expected to enhance profitability, while government support mechanisms stabilize farmer income amidst rising costs.

Investment StrategyCommoditiesGeopolitical Risk

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Key Takeaways

The growing water scarcity, particularly in the Midsouth, is intensifying competition for water rights and could have significant implications for asset valuations, especially in the context of expanding data center operations.

With increasing global demands for food and protein, farmland is poised to become a critical asset, making it essential for investors to consider the implications of geopolitical risks on resource acquisition.

Investments in farmland have proven lucrative, as seen with Landfund Partners' ability to outperform the S&P 500 and achieve significant revenue growth, indicating strong management and favorable market conditions.

The farmland market in the Midsouth represents a promising investment opportunity given its undervalued irrigated land compared to other regions, providing potential for substantial returns as demand for arable land increases.

GEO-POLITICS

Water Scarcity Trends — Water scarcity is expected to extend into the Midsouth over the next decade, partly due to the growth of data centers, which will intensify competition for water rights and impact asset valuations in the area.

“the goal, a desire of countries to aggregate natural resources for their food supply, onshoring of supply chains, making sure you can feed your population, making sure you have access…”—

Resource Acquisition — Nations are increasingly prioritizing the acquisition of natural resources for food security and rare earth minerals, positioning farmland as a vital asset for investors amid escalating geopolitical risks.

“heard that become more common among pundits in the industry. And I think that's this push to private assets is here to stay…”—

TECHNOLOGY

AI in Farming — The adoption of AI and advanced agricultural technologies is anticipated to boost profit margins for farmers, thereby enhancing the value of farmland as it generates increased cash flow.

“with GPS, tractors, and I know John Deere is actually working on a lot of these products, as are other agricultural companies, you can actually see profit margins expand for…”—

ECONOMY

Farmland Performance — Landfund Partners oversees over $400 million in farmland assets, achieving mid-teen net returns that have outperformed the S&P 500 since the launch of their soil enrichment fund in October 2021.

“>> Thanks, Max. really appreciate the opportunity to be on with you today. >> I don't get to talk a lot about alternative assets in the farmland space…”—

Succession Challenge — With the average age of farmers at 59 years, a succession crisis looms, likely leading to increased professional management and ownership of farmland assets in the coming decades.

“headlines about succession planning and you know the average age of a farmer is 59 years old…”—

Rising Protein Demand — As global GDP increases, the demand for protein rises, driving the need for grains that feed livestock and intensifying pressure on farmland to produce more with limited resources.

“have too much protein at times, right? But if you look at the aggregate world population, there's a very steady increase in the demand for protein…”—

MARKETS

Diversification Benefits — US rowcrop farmland exhibits a slight negative correlation with the S&P 500 and a stronger negative correlation with the NASDAQ over the past 30 years, making it a valuable diversification asset for investors.

“There's a slight negative correlation with the S&P 500. There's an even stronger negative correlation with the NASDAQ over the last 30 years…”—

Stable Investment — Farmland has shown almost no correlation with 10-year Treasury returns over the last 30 years, indicating its potential as a stable asset within a diversified portfolio.

“There's a slight negative correlation with the S&P 500. There's an even stronger negative correlation with the NASDAQ over the last 30 years…”—

Valuation Opportunity — The average price for high-quality irrigated farmland in the Midsouth ranges from $7,000 to $8,000 per acre, significantly lower than the Midwest average of $15,000 to $20,000 per acre, presenting a compelling investment opportunity.

“off the farm. So, the water is a huge reason why we focus in that part of the country. We're also really attracted to it from a relative value perspective…”—

FORECASTS

Nitrogen Price Effects — Rising nitrogen prices, driven by geopolitical tensions, are impacting corn prices and leading to expectations of increased soybean planting as farmers adapt to higher input costs.

“Soybeans interestingly are a legume. They actually create their own nitrogen through their growing process. What does this mean?…”—

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Important Disclaimers

Not Investment Advice: For education only — not financial, tax or legal advice.

AI-Generated: Made by AI from source transcripts and may contain errors.

No Guarantees: Past performance does not predict future results; investing carries risk.

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