❓ Making Money with Farmland & Agriculture - Playbook

Welcome to the Heartland…rows of corn and stacks of cash

Welcome to the next available playbook!

​

Right in time for the 4th of July holiday, we're discussing ways you can get into the pulse of the American heartland...farmland. Whether you have land you want to use for ag, or you're looking into investing in (or purchasing) a farm, or a bit of one, this playbook is for you.

Summary

“Leverage is knowing that even if they offered all the money in the world, you still wouldn’t sell.”

It’s the first episode of Yellowstone. Kevin Costner’s character, a strong, rough-looking man of no bullshit allowed type. He speaks of his Montana family cattle ranch being priceless. A tale as old as time: man has land, others want land, man defends land.

For many across America, the family ranch is not just their small business, it’s their lifeblood. Every day is a battle with Mother Nature. Sometimes she’s on your side, and other times she’s not. You time the rain, you time the frost, and you time the markets. Some weeks you’re in the fields 20-22 hours a day.

The kids miss a little school because the work has to be done NOW. The fields are half planted. We’re HAVE to get this done. And the livestock. That’s a whole different ball game. All this so the city folk can make a few clicks on an app and have food delivered to the doorstep in a few hours.

In the United States, there is a concern about rapidly vanishing farmland. There was 915 million acres of farmland according to the Census of Agriculture in 2012, which has dwindled to 897 million acres as of 2020.

The number of farms peaked at 6.8 million in 1935, but is now down to 2.02 million in 2020 with an average farm size of 444 acres and dwindling.

As farm ground shrinks, technology has stepped in and caused radical and influential changes in the farming industry as output and productivity have increased exponentially. Gross cash farm income (GCFI) is forecasted to increase by $2 billion from 2021-22 and Net farm income (NFI) is anticipated to be at its highest level since 2013.

Check out this resource highlighting some of the key trends.

Land is scarce and decreasing. Technology is allowing a forgotten industry to innovate and operate as efficiently as ever before. The population is growing, in numbers and girth, consuming a continually increasing amount of food.

As a Contrarian, I was thinking about how virtual our world has become—e-commerce, e-trading, and e-currency (i.e. Bitcoin)—with devices in every hand. But what about those in middle America or the farm belt that hold shovels; who drive tractors instead of Ferraris; and pray for rain instead of stock market swings.

Is there an opportunity to add another cashflow stream into my portfolio with an agriculture business based on the trends outlined above?

​Bill Gates owns nearly a quarter-million acres of farmland with assets totaling nearly $700 million as of 2021. If it works for him, I think it can work for us.

Although the model looks a bit different than, say, buying a self-storage facility or the corner car wash, ag-based businesses are viable for several reasons. They are recession-resistant, having an inflationary hedge with both the business cashflow and real estate appreciation. They are also typically uncorrelated to traditional markets, though you should ask your local farmer how gas prices are impacting their bottom line.

To learn more, we had saddled up and rode the fences with our new friend Carlos. Carlos is a fourth-generation cattle rancher. (You can’t just wake up one day and say “Oh, I think I’ll buy a few hundred acres and a million dollar combine and become a farmer.)

Carlos co-owns La Muneca Cattle Co., down in Linn, Texas. We shot the shit about ways even you can make money in the big business, ‘cuz that’s what it is, of agriculture. Check it out!​

​

Playbook

If you weren’t raised on a farm or a ranch, it may be hard to know where to start, and how to begin investing to build an ag business. There are four main ways to get into the game:

1. Own & Cash Rent-typical landlord arrangement

2. Own and Share Crop-income is based on profit

3. Own & Work-drive the tractor!

4. Fractionalized ownership

The first two options are fairly self-explanatory; own the land and either rent it to out for a set amount of cash or make rents based on production. In the latter, the land owner participates in both the upside and the downside. Option three, Old MacDonald had a farm, EI-EI-EIO. You work the ground yourself and sell your own products.

These are only a few types of investment options; be sure to do your own due diligence when crafting your deal.

Here is the step-by-step guide on how to find, vet and execute on agriculture business.

Step 1 – Know What You’re Looking For, and Where to Find It

There’s strong, and then there’s ‘Farm Strong.’

This business is not easy and not for the faint of heart. Nearly every country song sings about the turmoil of being a farmer and the tasks they are responsible for—it’s a 24/7 all hands on deck, dirty job. And even doing everything right, there are still a myriad of uncontrollable forces that could derail the whole operation.

You can search for the state and type of farm you want to buy at these websites:

• ​Farmflip.com​
• ​Landandfarm.com​

You can also search through:

• Use an experienced realtor or broker
• Contact owners directly (call, write, or door knock)

As Carlos from La Muneca shared with us, traditional geographical barriers to entry are being broken down due to social media and rapidly advancing technology. With the miracle of artificial insemination, you could buy one cow, a pair of Carhart bibs, lease a small plot of land, and yeehaw! you’re a cattle farmer. Here are some ways to buy just a single cow:

• Ranchworldads.com
• cattlerange.com
• cattle-exchange.com
• Contact local farmers
• Rodeos or live auctions

Step 2: Understand your Ranch’s Mission

As you are searching for land and/or animals? You will want to be cognizant of the following variables:

• What is soil and terrain like? What crop or livestock can be supported?
• What are the weather patterns like? How many inches of rain will you get each year?
• If you have livestock, will you be able to grow enough grain and fodder or will you have to supplement? Where and how will that work?
• How will you most productively graze the land?
• What equipment will you need?
• Can you find an operator to help run your farm or ranch?
• How close are you to other suppliers, producers, buyers or customers? Will you have to travel far to get deals closed?
• Is the land properly zoned?
• What type of loan can you qualify for?
• Are utilities connected? Is the land irrigated or not? Or tiled if it’s in a wetter area? Do you even have access to water?

In addition, ask yourself what is the competitive advantage that you are looking to capitalize on and therefore increase your ROI.

Is it that you are a specialist in the produce, poultry, or beef industries and believe you can capitalize on a gap in the local market? Are you great at marketing, networking, or savvy with technology that can help create efficient farming and maximize revenues?

Based on the answers to those questions, you can design your ranch’s or farm’s mission of delivering value around your expertise. From there, it will be imperative to prioritize your location. This will depend on variables mentioned above: location, weather, soil type, utilities, zoning, and other supply chain logistics.

If you have experience with cattle, Texas may be a great place to begin your search. If you are a grocer in another life and are an expert at how to maximize profit on potatoes and corn, buying an operational farm in Idaho or Illinois may be where you start. We’ve found it's very difficult to buy a profitable farm that can actually support a family, and a specialized niche farm–such as Wagyu beef–may be a superior business investment.

**To view the rest of the playbook and access your resources, visit the vault!**

AMA

Commodities and ag market experts Jordan and Kevin Van Trump, of the Van Trump Report joined us on our call June 21st, 2022 at 3pm CST. We brought all the questions on agriculture investments and hedging with land.

​

​