Most serious investors are at least familiar with the names Warren Buffett and Bill Gates. Buffett is the famous chairman and CEO of Berkshire Hathaway. He’s also known as the Oracle of Omaha, one of the most successful investors of all time. Gates is the founder — along with the late Paul Allen — and former chairman and CEO of Microsoft. The Forbes Real-Time Billionaire’s list for 2022 shows Bill Gates is the fifth richest person in the world, with a net worth of approximately $111 billion, while Warren Buffett is the seventh richest, with a net worth of about $101 billion. Gates and Buffett are personal acquaintances — Gates once served on the board of Berkshire Hathaway.
One thing both Warren Buffett and Bill Gates have in common is that they both love farmland as an investment. Buffett purchased his first farm before high school in his home state of Nebraska for approximately $10,000. Gates owns over 242,000 tillable acres. It’s also reported that Buffett owns a 1,500-acre family farm in Pana, Illinois, and three foundation-operated research farms, including over 1,500 acres in Arizona and 9,200 acres in South Africa.
The early 20th Century American humorist Will Rogers once quipped, “Buy land. They ain't making any more of the stuff.” Apparently, Buffett and Gates took Rogers’ advice seriously. For the past 30 years, the average return on farmland, adjusted for inflation, has been around 5%. That is a fairly solid investment for long-term investors, especially those who can buy and hold hundreds and even thousands of acres for the long term. Others, besides the super-rich, have also discovered this. The U.S. Department of Agriculture (USDA) reports that 30% of U.S. farmland is owned by landlords who don’t farm themselves. Such long-term investors — like Buffett, Gates and others — understand that there is no real downside but potentially substantial upside with farmland investments. This sentiment is probably truer today than it ever has been, especially because of the threats to the world’s food supply from climate change and the war in Ukraine.
Related news: Farmland investment platform AcreTrader released the results for its three fully-realized investments over the past year with annualized returns ranging from 15.4% to 30.3%.
Past Risks in Farmland Investment
There was a time, however, when investing in farmland was a fairly risky proposition. The USDA reports that
In the mid-1980s, farm prices dropped due to surpluses, inflation slowed, and demand for agricultural land decreased. These factors caused the second large decline in agricultural land values during the century. Land values dropped from $801 in 1984 to $599 in 1987, a decline of 25 percent. This sharp drop caused a great deal of hardship in the agricultural community. Many farmers and ranchers who had taken on large amounts of debt, based on inflated land values, were not able to continue operating. Agricultural land values have steadily increased since 1987 to the current average U.S. value of $1,050 per acre.
Because of what happened in the 1980s, the U.S. government has since taken as much of the risk away from agriculture as possible with its crop insurance program. Government spending for the program in 1981 totaled around $200 million, while in 2021 over $8 billion was spent. Yearly government subsidies also protect farmers from price declines and poor yields. Such subsidies cost taxpayers over $5 billion annually. More recently, over $29 billion was paid out to agricultural concerns from COVID-19 relief funds through the CARES Act, and a December 2020 stimulus bill granted agriculture an additional $13 billion.
Warren Buffet’s High View of Farmland
Warren Buffett especially believes farmland is a wise investment. Listen to what he said when he compared investments in farmland to investing in Bitcoin:
“If you said for a 1% interest in all the farmland in the United States, pay our group $25 billion, I’ll write you a check this afternoon,” Buffett said. “[For] $25 billion I now own 1% of the farmland. [If] you offer me 1% of all the apartment houses in the country and you want another $25 billion, I’ll write you a check, it’s very simple. Now if you told me you own all of the Bitcoin in the world and you offered it to me for $25 I wouldn’t take it because what would I do with it? I’d have to sell it back to you one way or another. It isn’t going to do anything. The apartments are going to produce rent and the farms are going to produce food.”
Investing like Buffett and Gates
Average investors don’t have the deep pockets of billionaires to purchase acres upon acres of farmland. An investor may be able to buy a small farm somewhere, but there would still be the issue of who would manage the property, who would plant the crops in the spring and who would harvest in the fall, not to mention the dozens of other things that would need to be done.
But the average investor can participate in farmland investing by purchasing shares of farmland or agricultural mutual funds, exchange-traded funds (ETFs) or real estate investment trusts (REITs). You can purchase these types of investments through your brokerage or retirement accounts. With a little research, you should be able to find one that meets your investment objectives.
Accredited investors also have the option to invest in farmland through investment platforms like AcreTrader with minimum investments ranging from $10,000 to $20,000 for most offerings.
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