Yes, Crypto. The Smart Money Is on Farmland.
Plus, Fed Chair Jerome Powell spits into the wind talking CBDCs with GOP lawmakers.
Number of the Week: $430 million (explanation below)
Yes, Crypto. The Smart Money Is on Farmland.
While 580 million cryptocurrency holders worldwide obsess over bitcoin’s surging price—with per unit projections ranging from $138,000 within three weeks to $1.48 million by 2030—the smarter, long-term investment in the world of alternative assets could be in farmland, as a limited supply globally and strong buyer demand is increasing its appeal as an alternative investment for retail investors.
Unlike crypto, venture capital, private equity, collectibles and art, direct lending, and other alt assets, the attraction of farmland investing is tied to its consistently good returns (averaging an 11% return per year, as compared to stocks, bonds and real estate), hedge against inflation, and projected strong future value driven by global population growth and demand on food supply, advancements in innovation to increase agricultural output, and income and capital appreciation.
A number of farmland-specific and alt-asset investment platforms—including AcreTrader, FarmTogether, Alto Marketplace, and Harvest Returns, among others—are working to aggressively expand the market by giving accredited retail investors convenient and affordable access to high-quality farmland investments as part of a portfolio diversification strategy.
AcreTrader, launched in 2018 by founder and CEO Carter Malloy, gives accredited investors the ability to invest in individual farmland properties through “unique entities,” typically individual LLCs, which are divided into fractional shares. The administration and management of properties are handled by AcreTrader Management on behalf of the various partnerships. (The transactions that investors enter are partnerships and not regulated securities.) The minimum investment for deals ranges between $15,000 and $40,000, but can reach $100,000 or more. AcreTrader’s fees include a one-time closing fee of roughly 2% (it differs for each partnership), an annual fee of 0.75% of the value of the farmland, and a real estate broker fee of 5% for property sales. Funds are raised before closing on farmland purchases and are generally locked up for anywhere from three to 10 years.
In March 2022, the company expanded its $40 million Series B funding to over $60 million, with an investment from Drive Capital, and reported that its revenues had grown more than 5x, its customer base had tripled, and the amount of land live on its platform had more than doubled. It reportedly has $200 million in assets under management. Last year, AcreTrader’s broker-dealer, AcreTrader Financial, began partnerships with ag-focused entities such as FBN Finance, Peoples Company and Strongwater Viticultural Investments to give investors access to offerings that include farm options, 1031 exchanges and Delaware Statutory Trusts (DSTs).
In January, AcreTrader integrated its Acres platform, a geospatial land research and analysis tool, with Peoples Co., a land transaction and management business focused on the agriculture real estate market. That same month, AcreTrader exited an investment in corn and soybean farmland for property in Monroe County, Arkansas. (The deal was made available on the platform in 2019 and sold in December 2023.) Investors reportedly earned an internal rate of return (IRR) of 9.4%. AcreTrader has also reported other exited investments, some with IRRs of more than 15%.
San Francisco-based FarmTogether, a crowdfunding platform launched in 2017 by Artem Milinchuk and led by Jared Hine, allows investors to peruse vetted farmland deals and make investments using self-directed individual retirement accounts (IRAs), corporations, and LLCs, as well as traditional investment means. Its minimum investment requirement is $15,000 and goes as high as $100,000 or more (in one current offering, a $3 million minimum investment for a sole ownership deal); its fees include an initial investment fee of 2%, annual maintenance fee of 1% to 2%, and net operating income fee of ranging from 0.75% to 5%. Lock-up periods range from two to 12 years. The platform claims to have 1,800 clients, more than $185 million in assets under management, closed more than 45 deals, targeted net IRRs of 6-13% and targeted net cash yields of 2-9%.
Unlike AcreTrader and FarmTogether, Alto Marketplace—part of Alto, founded and led by serial entrepreneur Eric Satz—is an alternative investment portal that curates exclusive private deals for accredited investors spanning a range of alt assets, including farmland. Investors use their self-directed Alto IRA accounts to invest on the Marketplace platform. It recently announced an expanded partnership with Farmland LP’s Vital Farmland Fund III, a fund manager specializing in organic farmland. Alto is also integrated with the AcreTrader and FarmTogether platforms, allowing investors to use their Alto IRA accounts to invest in farmland deals. Minimum investments range from $2,500 to north of $50,000. Alto has 30,000 clients and more than $1 billion in assets under administration.
A deeper look at global and U.S. farmland projections and it’s clear why farmland investing is gaining the attention of accredited retail investors. By 2050, farmland around the globe is projected to have to support more than 9.7 billion people, which, in turn, will require a 60% increase in productivity, according to Nuveen’s “Investing in Farmland” report based on data from the World Bank and the Food and Agriculture Organization of the United Nations. Forty-four percent (44%) of the world’s habitable land is used for agriculture, equating to an area of approximately 48 million square kilometers—roughly five times the size of the United States. One-third of agricultural land is used for croplands, with the balance made up of grazing land. Half of the global croplands is used to grow crops consumed by humans, 38% is used to grow crops to feed livestock, and 12% is used for non-food uses (biofuels and other industrial products). When global grazing land and cropland used for animal feed are combined, livestock accounts for 80% of agricultural land used to produce meat and dairy. Crops for humans account for 16%, while non-food crops total 4%.
In the United States, the output of American farms accounted for $223.5 billion of the $1.42 trillion contributed by agriculture, food, and related industries to U.S. gross domestic product (5.5% of GDP). There are about 893.4 million acres of farmland, worth roughly $3.3 trillion. The total number of U.S. farms is just over two million, with farm sizes, on average, totaling roughly 446 acres. Farm sector equity, or the difference between farm sector total assets and total debt, is forecast to rise to $3.74 trillion in 2024, a 4.7 percent increase over 2023, according to the U.S. Department of Agriculture Economic Research Service. Farm sector assets are expected to increase 4.7 percent to $4.28 trillion, while farm sector debt is expected to increase 5.2 percent to $547.6 billion in 2024.
The average value of U.S. cropland (irrigated and non-irrigated) in 2023 increased 8.1% from the previous year (cropland value increased 107% between 2009 and 2023), while the average value of pastureland was $1,760 per acre, a $110 increase over 2022 and a 66% increase since 2009, according to the U.S. Department of Agriculture’s National Agricultural Statistics Service 2023 Agricultural Land Values and Cash Rents survey. The top five states with the highest cropland value per acre are New Jersey ($18,100), California ($15,880), Iowa ($10,100), Illinois ($9,580) and Delaware ($9,500). At $155 per acre, the average rate paid per acre for irrigated cropland in 2023 was $237 (up from $227 the prior year) and non-irrigated cropland was $142 (up from $135). For pastureland, the average rental per acre at $15 is up $1 from the prior year. The rental cost per acre of cropland among states in 2023 ranged from $347 in Arizona $34.50 in Oklahoma.
Despite growing interest, the risks of farmland investing are many: operational (including weather and climate risks that impact agricultural productivity), commodity price, land value, and limited liquidity. Another risk on the horizon: In 2024, net farm income is forecast to hit $116.1 billion, a decrease of $39.8 billion (25.5%) relative to last year in nominal dollars. If this holds true, then net farm income in 2024 would be 1.7 percent below its 20-year average (2003–22) of $118.2 billion and 40.9 percent below the record high in 2022 in inflation-adjusted dollars.
Although crop direct income, which varies regionally, is considered a primary driver of farmland value, some market observers point out that factors such as stability (low volatility) and the willingness of buyers to pay a premium for a specific location can drive up farmland values. Others, however, see the growth of farmland values slowing: “Likely, we can expect farmland values to plateau in 2024 or at best, achieve a slower rate of growth, year-over-year, of under 5%,” said MetLife Investment Management’s Sue Aguilar, associate director of agricultural finance, in a recent company blog post.
Even so, investors’ anticipation of significant returns driven by appreciation over time and the interesting deals being curated by farmland investment platforms make a strong case for the asset class’s growth potential.
Noted & Noteworthy
In an attempt to sort fact from fiction in a Senate hearing this week, U.S. Federal Reserve Chairman Jerome Powell dispelled the idea that the Fed was close to building a central bank digital currency (CBDC) in the U.S. and that any future system would be used by the government to spy on Americans by gaining access to user data, as some Republican politicians have alleged. “We’re nowhere near recommending—or let alone adopting—a central bank digital currency in any form,” Powell told the Senate Banking Committee. What federal officials have said in response to repeated GOP allegations is that they are simply studying the idea of CBDCs, much like what other monetary authorities around the world are doing, and that no CBDC would be launched without authorization by Congress and the White House. More than 100 countries are in the exploration stage of CBDCs, with central bankers in Brazil, China, India, Europe and the UK “at the forefront,” according to the International Monetary Fund (IMF); Bahamas, Jamaica, and Nigeria have already introduced CBDCs. The IMF recently launched a virtual handbook whose purpose is “to collect and share CBDC knowledge with policymakers around the world, and to serve as a basis for the IMF’s engagement with country authorities.” When Senator Cynthia Lummis (R-Wyo.) pressed Powell on the subject, asking “Do you still agree that the Federal Reserve cannot introduce a U.S. central bank digital currency without congressional authorization?,” he said, “Yes, I do.” Chances are that fell on deaf ears.
The next new thing in fintech: copy-IPO-ing? Oscar Wilde famously said “imitation is the sincerest form of flattery,” but Klarna CEO Sebastian Siemiatkowski intends to copy Google’s “perfect IPO” as the Buy Now, Pay Later (BNPL) company readies for its own initial public offering (IPO), whose timeline he pegged as “quite soon” in an interview on Bloomberg TV this week. On why he’s enamored with how Google—now Alphabet—went public, Siemiatkowski said: “You had a company who had proven itself, it had proven its business model. It was a global company, but it was also a company [that] had the majority of its growth ahead of itself, right? And I think that that’s been the timing we’ve been looking for.” But as one-time Google CEO Eric Schmidt pointed out in a Harvard Business Review commentary years after the company’s IPO, the process was “quirky,” code for having many stumbles along the way, including an ill-timed interview that Larry Page and Sergey Brin did with Playboy magazine (yeah, about those “quiet periods.”) So Klarna’s chief might just want to imitate, rather than copy his corporate idol’s IPO strategy. One way or another, Klarna is among a slate of fintechs expected to go public in 2024.
FINvestments
🦈 Number of the Week: UK app-only challenger bank Monzo raised a $430 million Series I funding round with a post-money valuation of $5 billion, up $500 million from 2021. The round was led by CapitalG, Alphabet’s independent growth fund, and saw participation from HongShan (previously part of Sequoia Capital), Tencent and Passion Capital. In a statement, Monzo CEO TS Anil characterized the company’s latest funding as giving it “the rocket fuel to go after our ambitions harder and faster.” Why this matters: With nine million retail customers and 400,000 business banking customers already, Monzo intends to use the cash to step up its expansion plans, including a renewed second bid to enter the U.S. market, this time via a partnership. (In 2021, Monzo withdrew its application for a U.S. banking license after two years of negotiations with regulators stalled.) In late 2023, Monzo hired Conor Walsh, former head of global product at Cash App, to succeed U.S. banking veteran Carol Nelson as its new U.S. CEO.
🦈 Synctera, a fintech startup in the highly underrated Banking-as-a-Service (BaaS) platform market, closed an $18.6 million extension to its 2021 Series A funding round, co-led by Lightspeed and Fin Capital and including contributions from existing backers NAVentures (the venture arm of National Bank of Canada) and Diagram and new investors Banco Popular and Mana Ventures. Cofounded and led by Peter Hazlehurst, former head of Uber Money, and launched in 2020, Synctera’s end-to-end BaaS platform enables companies to build and launch fintech apps and embedded banking products much faster while meeting all compliance requirements. The company said that in 2023 it scaled annual recurring revenue 4.5x, increased live customers more than 2x, and saw a 20x increase in spend on the platform.
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I’m compelled to point out LandX, a crypto token project which “ is focused on creating long term food security by decentralising and democratising global farmland markets ”.