Elusive Farmland Investing

Barron's had a fun article about investing in publicly traded farming stocks. Many years ago I wrote quite a few posts about trying to add farmland investing into client portfolios. Back then, I found a few micro cap stocks, a few in Europe and a lot in Asia. 

The big idea with farmland is it tends to have a low correlation to equities, less volatility of demand (inelastic) for agricultural products and less volatility in price than equities. Conceptually, I am all in. I was all in 15 years ago when I was writing about it. I need no convincing. Unfortunately, actually capturing the effect through some sort of exchange traded vehicle isn't so easy.

Barron's focused on two names, Farmland Partners (FPI) and Gladstone Land (LAND). A secondary way to capture the effect (per the article, not me) is the Van Eck Agribusiness ETF (MOO). There was also an offhand mention of Versus Capital Real Assets Fund (VCRRX) which is a weird one. Morningstar has no info on it, nothing, and the chart on Yahoo is a horizontal line. 

  

Here are the three names from the article versus the S&P 500 for five years coming into the bear market. MOO tracked very closely to the S&P 500, trailing off maybe as tech lifted the broad market, so MOO couldn't keep up. LAND, at times tracked the S&P sort of, other times it lagged by a bit and then rocketed higher for the last few months of 2021. FPI had far less volatility, it started doing very well in late 2020. It traded flat in the middle of the chart which isn't necessarily bad but that erosion of the price going into year-end 2018 was a 44% decline over those two years. 

Both FPI and LAND offered protection in the Pandemic Crash of 2020. In the Christmas 2018 crash, LAND fell about as much as the S&P 500 while FPI fared much worse. Now here's the YTD chart.

 

FPI has done heroically, MOO has done very well and LAND with its history of being more volatile than FPI has done significantly worse than the S&P 500. My hunch is that MOO's result is much more about commodities and natural resources broadly doing better than the S&P 500 in the face of rising price inflation than it is about being a proxy for farming. 

Barron's briefly talked about ways for accredited investors to buy farmland via non-publicly traded means. My hunch is those avenues would capture the effect a little better but I have no interest in that sort of complexity or expense. 

This is all part of a bigger issue with some industries that have investment options in publicly traded markets, real estate and private equity come to mind. A true real estate investment or true private equity investment could easily mark to market in such a way that looks nothing like the stock market. Exchange traded vehicles for those spaces simply don't do that with any sort of reliability. I'm sure there are exceptions but there is no reliability for the effect. 

If you want to buy a REIT or REIT fund for having a little less volatility and a higher yield in all likelihood, go for it, but when markets crater, the time when you most need diversification, that REIT is very likely to go down with the broad market.