Alternative Investments – Farmland

Alternative Investments Yesterday, Jay at Thinking Wealthy published an article on alternative investments (Thanks for the inspiration, Jay). This article is quite timely as the topic has been on my mind for a while. With the stock market hitting all-time highs and the lack of easy value pickings, I have been spending my time reading and exploring alternative investment ideas.

Alternative Investments

So what are alternative investments? The classic definition of alternative investment is an investment in asset classes other than stocks, bonds and cash. This can include investments in gold, jewelry, real estate, private equity, art pieces etc.

Real estate is probably the most common alternative investment form used by many. But since my wife and I just bought our house this summer, we think buying a second investment property will have to wait a few years. However, that hasn’t stopped me from doing my research and learning about other investment opportunities out there.

I recently read and reviewed a book on the business of global warming called Windfall from McKenzie Funk. While the book was hugely entertaining, it provided with a lot of investment ideas. Due to the time scale at which the global climate events occur, it makes for a great seed for investing for the long term.

One of the main takeaways from the book was an investing theme centered around food. Taking into consideration that the world population is continued to grow for the next few decades (with a target of 8.3 o 10.9 billion by 2050 according to UN), the case for food demand is pretty solid. The author delves a bit deeper into how some investors are moving fast to grab farmland in Africa, Eastern Europe and Canada. This set off some of the proverbial bulbs in my head – and its a topic that Ive been researching over the last few weeks.

I also met a maple syrup farmer (is farmer the right word?) at a party recently, and speaking from first-hand experience, he was telling me how the business is facing immense pressure from overseas money – Chinese investors are willing to pay a handsome premium on the property and farm values, but unfortunately for them – Canada has very conservative laws associated with owning farmland. While I was reading Windfall, I also started exploring ideas on buying farmland in the Canadian provinces of Saskatchewan. Saskatchewan has a long history of being a great place for farming with plenty of fertile land. Fellow blogger Freedom 35 bought farmland in Saskatchewan and his investment has paid off handsomely (Canadian farmland values have risen 29% in 2013). However, it has to be noted that there are lots of restrictions in place when it comes to buying farmland in Saskatchewan. The buyers needs to be a Canadian citizens! An individual can own Saskatchewan farmland directly, but so can other “entities” as long as they are 100% Canadian-owned and not publicly traded. This point makes it is hard for Canadian farmland REITs to go public while owning Saskatchewan farmland. Full details can be found here. The restrictions described here mostly pertain to farmland only in the province of Saskatchewan. Most other provinces have either no limitation or minimal restrictions.

For now, my only exposure to food is through stocks in companies such as Agrium Inc (AGU.TO) and Archer Daniels Midland (ADM).  Agrium is a fertilizer company that specializes in a wide variety of products including the three main necessities in crop growth and health – Nitrogen, Phosphate and Potash. Agrium’s main market is industrial and commercial agriculture. Agrium has been paying dividend since 1999, raised dividends for 4 years in a row and has a 5-yr dividend growth rate of 90.5%,. Archer Daniels Midland is one of the world’s leading agribusinesses that manufactures and sells food essentials, processed agricultural products and value-added feed ingredients. ADM is a dividend champion that has been paying dividends since 1927, raised dividends for 39 years in a row and has a 5-yr dividend growth rate of 7.9%.

Full Disclosure: Long AGU.TO, ADM. My full list of holdings is available here.

Image source: Freedigitalphotos.net/David Castillo Dominici

29 thoughts on “Alternative Investments – Farmland

  1. Although I’m personally not at a point where I can invest in it myself, farmland sure seems like it would be a sound long-term investment. The world’s population is skyrocketing, and we’ll always need to eat!

    • You got it, DD. Food and agri business, although facing some headwinds with record productions right now are great long term investments. I am also looking into processed and packaged food companies as I want to get a piece of that market as well.
      Thanks for stopping by – your blog is new to me…and I will be sure to follow along on the journey.

      cheers

  2. R2R,

    Thanks for pointing out some off the beaten path opportunities. Another alternative that I have been considering is peer to peer lending. While not exactly new, it does provide some diversification to one’s overall portfolio. One of my buddies has some farm land in southern Missouri and he adds three or four cows a year to his property. In five years he expects to have 35 calves delivered a year and at $1000-$1200 per head, the passive income along with a multitude of tax deductions will pay off nicely for him.

    MDP

    • P2P lending does sound interesting, MDP. Ive been reading the reports from some of the other bloggers out there but those services arent available here in Canada – so, its not available for me. I’ll have to keep an eye out if those services make it across the border.
      Sounds like your buddy has a pretty good gig going on. I have no experience or even pretend to know anything about farming. I’d probably rent the land out to a farmer if we ever make that investment.

      Thanks for stopping by
      R2R

  3. Farmland has been one of my family’s long term holdings. Infact the same dirt has been in my family since the 1880s. It pays a few bucks of income every year, nothing amazing. I’ve been on the hunt for some alternative investments for the past few months, but the lack of liquidity has scared me off. Cash is my best investment at the moment……until I can identify more opportunities
    -Bryan

    • Wow, thats a long time – good thing you are hanging onto it…even if its not producing a lot of income. Ive had a few more alternative investment ideas over the past few months – will share them in another post

      regards
      R2R

  4. R2R,

    My favorite alternative investment is private lending. Yes, you need to have some capital to start, but it gets you in the real estate game without the headaches of tenants, toilets, and termites.

    Deets

    • Yes, property management sure cant be fun. Like I said in an earlier comment, private lending is something that isnt available for us here in Canada (atleast not that I know of) and have been keeping an eye on it to see if any of those companies come across the border. Until then, I watch enviously at you guys 🙂
      R2R

  5. Canadian farmland values on average increased 22% last year in 2013, and 20% the year before that. Compared to 10% increase for the S&P/TSX Composite in 2013, and 3% in 2012. It’s too bad we don’t have an established market for P2P lending up here like they do in the U.S., Europe, and Asia. We’re probably the only developed country left who still uses an antiquated segmented securities regulation system. But the closest option I could find to P2P are mortgage investments through MICs. It’s when a group of investors lend to a group of borrowers. The catch is the money can only be used for real estate development. But that’s also good in a way because it means the investment is secured by a hard asset. The stock market took a big drop this week, but MIC investments stayed relatively flat. Alternative investments are really cool because their performance is irrelevant to what the traditional financial markets do. Good for diversification purposes 🙂

    • Thanks for the corrected values, Liquid. Farmland, P2P lending and MICs make for good diversification – and since they are off the beaten path, might be worth a look. Too bad we have so many roadblocks on the P2P lending market, but I saw your post on MICs and its something that intrigued me. Considering almost 1/3 of our net worth is tied in real estate, I dropped the idea of investing in MICs for the time being…I will have to revisit in a few years.

      Thanks for stopping by
      R2R

  6. Thanks for sharing your thoughts…farmland seems to be a nice alternative investment. Even though I don’t see myself doing any farming, the land could always be leased to a local farmer. With the current trend and desire for organic foods, I see the value for farmland only growing from here.

    AFFJ

    • Thats true, AFFJ. Commercial farming has moved over too much towards industrial needs and using GMO foods. The smaller organic farms gap can be filled by individual investors as the demand for organic food continues to grow. If I remember correctly, SoCal has a huge market where it supplies for most of N.America’s needs, but then again – land is expensive down there (I assume farms are expensive too, like the housing market).

      Best wishes
      R2R

  7. JC says:

    Farmland is a great idea as an alternative investment with I’m sure much less headache than being a landlord. The world is going to need to continue to produce more and more food given the population growth.

    • Thats right JC. Although, I wonder if farmland comes with its own problems like soil quality etc. But the fact that its just a piece of land, definitely comes with far less of a headache when it comes to tenant management.

      R2R

  8. R2R,

    Interesting post! Investing in farmland is an interesting perspective. It is great to keep an open mind with alternative investments, as it could be the key to opening your financial independence. My rental property is my main source for alternative investing for now. It does come with headaches, but has great potential to build wealth.

    • You are well ahead, AD. I wish I owned a rental property by now, but its definitely an option going forward. Theres been a lot of speculation that the Canadian real estate is in bubble territory – so if it pops, we will be seriously considering buying a second property to build our net worth. Farmland is also a great alternative.

      Thanks for stopping by. Cheers
      R2R

  9. Food and Energy – 2 basic needs that will always be required. I like the post R2R, i have a bunch of POT ( as in the stock :)) with the same philosophy on food. Looking for further agricultural plays over time, i wish they would pay better dividends as there aren’t too many pickings unfortunately. Will see if the ‘hot money’ flows into this sector in the coming years, all i can say for sure is that every year the climate is noticeably changing where i am so something is def up.

    cheers
    T

    • Glad you like it, TFTT. I went with AGU instead of POT as I find that AGU has a more diversified portfolio of products for nutrients.
      Re buying farmland – I found two companies that have gone public in the US (FPI and LAND). I havent looked into the financials yet but looks like an interesting way of gaining exposure. The bull case for food and energy is strong indeed.

      Thanks for stopping by
      R2R

  10. Your post reminds me of an article I wrote a while back titled, “Moo… Agribusiness Dividend Stocks.” You can see it here http://divhut.com/2014/05/moo-agribusiness-dividend-stocks/ It is a correct assumption that food demand will grow as the world population grows as well. Farmland is one way to play this trend but another is the fertilizer and agricultural chemical game as well as seed companies. There are many great U.S. and Canadian companies in this space and you mention a few. I think for most of us this is the only way to invest in the space as farmland tends to be out of reach for most people. Thanks for sharing.

    • Thats right, DivHut. There are various ways of playing this sector & trend. I have picked ADM and AGU as my investment vehicles and this article talks about farmland as an alternate investment, which I thought was appropriate, esp in the current frothy conditions. There are a couple of options to invest in farmland for the general public – via FPI or LAND. Hmmm I will need to have a closer look at the two, but it sure looks interesting.

      Thanks for stopping by
      R2R

Leave a Reply

Your email address will not be published. Required fields are marked *