Agro Sector Ideas

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Farmland - >>> What's Next in Real Estate? 3 Investors Weigh In


Motley Fool

By Liz Brumer-Smith, Mike Price, and Kristi Waterworth

Jul 10, 2022


https://www.fool.com/investing/2022/07/10/whats-next-in-real-estate-3-investors-weigh-in/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article


Mike Price: The long-term case for investing in farmland is clear: The amount of arable land worldwide is falling and the number of humans needing to eat is rising. This creates a reduction in supply and an increase in demand. The short-term case is fuzzier.

Most likely, farmland will continue to do well over the next six months as long as inflation stays high. When food prices go up, owners of farmland make more money and require more to sell the land. According to the Bureau of Labor Statistics, the May food at home price index rose 11.9% over the preceding 12 months; that's the most it has risen over any 12-month period since 1979.

The Fed is working on it -- there have been several rate hikes already this year -- but so far, there's no end in sight for inflation. According to the NCREIF, total farmland returns were around 7.8% in 2021, with half coming from price appreciation and half coming from income. Debt isn't flowing as easily to buyers now as it was in 2021, but you can expect at least that level of return from farmland for the full year of 2022, because income will increase along with the food price inflation.

Gladstone Land Corporation

What does it mean for individual investors? The most common way for individuals to invest in farmland is with the two big farmland REITs: Gladstone Land (LAND 0.68%) and Farmland Partners (FPI -2.01%). Both had spectacular returns in 2021, as rumors of the coming inflation started to materialize into facts. But both have fallen like most REITs so far in 2022. Gladstone is down around 35% year to date, and Farmland Partners is down 20 %.

The two REITs have different strategies. Gladstone focuses on healthy crops with grains as a secondary focus. Farmland Partners is more vertically integrated. In addition to owning and leasing farmland, it brokers farmland sales, runs auctions, and farms some of its own land and land that it leases from others.

Both REITs should have good FFO growth in 2022, with Farmland Partners moving from losing money to making it, and both REITs recently announced increased dividends. I lean toward thinking that the market soured on the two REITs so far this year because it was down on REITs in general. If they have good Q2s, they'll likely do well over the rest of the year.

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