Rocket Your Dollar Ep. 28: Investing in Farmland

How do you think farmland (the NCREIF Farmland Index) performed during the last great financial crisis, the recession of 2008/09? Artem Milinchuk, CEO of FarmTogether, knows farmland was up 23% from Q4 2007 to Q4 2009. At FarmTogether, Artem and his team are democratizing farmland for investors because finding high-yield in asset-based alternatives that are not correlated to the US financial market can be challenging.

Transcription:

Thomas Young: Today I'm stoked to have Artem Milinchuk, CEO of FarmTogether, here. Artem is the founder and CEO of FarmTogether, and FarmTogether is a farmland investment platform with the mission of making it easier for people to invest in US farmland. At $2.5-3 trillion in the US alone, farmland is a massive opportunity for wealth building. It's a huge space. Artem has over 10 years of finance experience in the feed agriculture and farmland space and before founding FarmTogether, Artem Milinchuk was employee number one and the CFO and VP of Operations at Full Harvest Technologies. A new post series, a B2B platform. For buying and selling produce. Before at Full Harvest Technologies. He worked at the Ontario Teacher's Pension Plan, at Sprott Resource Holdings, Ernst & Young and PricewaterhouseCoopers. Artem thank you for being here.

Artem:
Absolutely. Thomas, thank you so much for having me.

Thomas Young:
Of course. So I'm really curious, how did you get into the agriculture space and where you are today?

Artem:
Yeah, it was a little bit by a happy, happy accident, as Bob Ross says. In 2004, when I was starting my career in finance, I was working on a food file. It was Nestle buying a chocolate factory. So I enjoyed the people and as I kept kind of working in the finance space, I realized that I liked that food and ag industry. I like the people there. It's something that touches everyone. I like practical things, that have intrinsic value and food is as intrinsic as it gets, maybe next to water and air. So yeah, I love the space and the people that I get to work with.

Thomas Young:
That's awesome. It's so funny that you mentioned that it's a happy accident because I feel like that's the way a lot of the people at Rockefeller, including myself, fell into the self-directed space, and yeah, it just pulls you, most of the time it's not even your choice. So Artem, I'm curious as to how your experience at Full Harvest Technologies, and what you guys were working on there, how that led to you to what you're working on now at FarmTogether and how those sort of are different or how others sort of related?

Artem:
Absolutely. So Full Harvest Technologies is a company also based in San Francisco with, I think, a very powerful and noble mission to eliminate food waste at the farm level. What happens in farms in the US, and all over the world is that, especially in the developed world, is that farms throw out a lot of excess and ugly fruits and vegetables. They're perfectly edible, they're perfectly fine. You spend water, labor, to grow them when they don't fit kind of the quote-unquote perfect standard. So what Full Harvest did is that they started connecting those farms directly with processes, with juice companies, for example, pet food companies, food companies that process their fruits and vegetables. So you don't care what they look like. That created a lot of value to the farmers, a lot of value to the buyers. It puts downward pressure on consumer prices.

That was a marketplace, it was a marketplace in the food and ag space. So building that company helping the founder, Christine Mosley, build that from scratch I think gave me the confidence and the connections to do FarmTogether, just seeing also how ready, how eager farmers in the food industry were for innovation. They felt that they were a little looked over by all the things happening in finance, in tech. Yeah, it was a great one year of experience. After that, I sort of spreading my wings and went to start FarmTogether.

Thomas Young:
That's awesome. When did FarmTogether start?

Artem:
I would say the kind of we launched in 2019. 2018 was a year of exploration, it was figuring out what it is we're doing, doing a lot of different data testing and research. I would say in earnest, we launched in 2019, but the team itself and the partners we have, we've been doing this for awhile on the farmland investing side.

Thomas Young:
That's fantastic. Congratulations to you guys.

Artem:
Thank you.

Thomas Young:
That first couple of years they're tough, but they're worth it.

Artem:
They're the toughest, yeah. We wanted to do everything right, so we took our time.

Thomas Young:
Right. Then you realize that you do only about half of the things right-

Artem:
Then you have to go back and redo them. Yes.

Thomas Young:
That's what it's all about. So tell me what does FarmTogether do specifically? What are you guys working on and what's sort of the mission there?

Artem:
Yeah. Well, the mission is very simple, it's to give everyone in US access to investing in US farmland. It's interesting because for a lot of other asset classes, real estate being one of them, or in stocks, bonds, Bitcoin, almost anything that's vibrant ecosystems platforms, a lot of investment options. But for farmland, which you know I like to say is the oldest asset class and even was the first Apple farmer. It's really interesting how everyone thinks, "Oh my God, look at this exotic asset class." But it's not, it's very simple. It's you invest in the product, infertile land, farmed by the best farmers in the world. The US farmers ware very productively, and it works just like real estate where you invest in a piece of land, it's typically rented out or contracted to the farmer, which is a very common practice in the US. 40% of the formula is rented already, and then you collect that cash rent.

Similar to buying a house in Austin, renting it out or buying it a front property and renting out a restaurant. It's similar. The challenge that we're solving for farmland investing is that, because of economies of scale and how expensive land is, and farmland has been going up for many years now because of the demand from the farmers and savvy early investors is. Your typical land size starts from $1 million, two, three, four, 5 million. So really to invest in it and invest in it in a diversified way, which is something we encourage people, right, add it to your real estate, to your stocks and bonds. Suddenly we're talking about you needing to have a hundred plus million dollars, right? Even if you think you want to put 5% in farmland that's $5 million, right? And that'll get you maybe one piece of land, one farm. So we source and underwrite the land. We find the farmers to rent it and then we fractionalize it. So you can invest in different farms for as little as $10,000.

Thomas Young:
So I'm curious as to where you mentioned the space and the agriculture space, farming has been around ever since we settled from hunter-gatherers, right?

Artem:
I mean yeah, that's what defines civilization. Yes.

Thomas Young:
Absolutely. So I'm curious as to, is the appreciation of the land where you're seeing the potential for growth? Or is it around productivity? Or is it a combination? Like what is driving the growth in the farming sector specifically?

Artem:
Absolutely. I'll kind of start, the very high level at first, which is the biggest driver is the growth of population and improving diets. Everyone wants to live and eat as people do in the West, that means more diverse foods, organic foods as well, fruits, vegetables, tree nuts. The supply of farmland is decreasing, due to urbanization, due to the labor movement, due to climate change, due to water issues. So that's kind of the basic supply and demand, right? Because Mark Twain says, another thing we have in the farmland of investment business, "Buy land, they don't make it anymore," and that's true.

That's kind of what's been driving it. But coming down to the US level and the last 20 years, 25 years, farmland is also part of a much bigger trend, which is alternative investing. We have moved on from stocks and bonds to people wanting to invest in a lot of different things, in the US, and globally. So the farm is just playing catch up to the real estate to other asset classes. That's been another driver.

Then to answer your question about press appreciation versus rental income, as this kind of cash income. You have this thing that, it's almost like Moore's law, but for farmland, which has that since 1947 farmland productivity has been going up by, the average for about 3.2%. so things like a green revolution, things like ag-tech, so all this innovation has been driving land productivity and that in turn flows to the price of the land, right? So if you can produce more inland, it's worth more. So that's been one driver, land and farmland products go into thousands of consumer products. So farmland is very correlated with inflation, and the farmland prices. So farmland has done well in periods of inflation.

Then lastly, coming to FarmTogether. The way we drive returns for our investors is that we have very conservative and very tech-enabled to sourcing and underwriting. We don't want just a farm that is listed on the public market, although sometimes you can get good deals there. We want land that we can buy below market that maybe we heard about first and maybe we can come up with a custom deal for the seller, maybe we can do some improvements. So we typically aim for something like a 10 to 30% discount. To the price of the land through purchase or those improvements. So I would say when you look at the returns for farmland and returns for targeting for farmland, roughly half, maybe a bit more would be price appreciation was longterm and that the discount and then maybe 40% would be cash rent. That kind of income.

Thomas Young:
That's interesting. I think that's a really interesting way of going about it. So I have had kind of a follow on question. So is FarmTogether actually purchasing the farm, purchasing the land, and then securitizing and sending it to your investors? Or are you guys sort of just brokering the deal without buying the land first?

Artem:
Yeah, we do different ways. There are different setups. Sometimes it's creating a custom vehicle that essentially says, "Look, we're going to go and buy a farm. We didn't know which one yet, but this is what it's going to look like approximately." Sometimes we will use our investor's capital to buy the land. Sometimes we will do securitization. So it's very much dependent on the type of clients and the type of land. There's no kind of one answer, no one size fits all

Thomas Young:
Right. Okay, that's cool. That's good that you guys can maintain flexibility and do what's best for your investors and the deal at hand. So, I'm also curious, I'm just going to start spouting out questions. How much farmland are you guys controlling through you guys in your investors? What do you guys sort of look like right now? I mean I know it's early, but.

Artem:
Yeah. So we, right now, so the deals and the platforms and the deals we've done, we have a few farms. Our partner that helps us source this land on the row crop side, so crop corn is that corn, soybean, wheat, and the permanent crop is kind of their tree nuts, the fruits, and vegetables. Do you have like trees permanently or do you need to plant every year? So on the row crop side, which is the safer, stable types of returns, our partner now has over 400 million under management and has done over 200 deals, and has been in the business for 10 years now. Yes, very experienced, very seasoned professional.

Artem:
Same on the kind of to maybe expand a little bit on your question because one thing I want to communicate to your listeners that, while the company is young, the team is seasoned. On the permanent crop side as well, our investment director comes from Prudential, which is one of the oldest largest farmland investors, besides being a huge insurance company, and he has done over 220 million investing in permanent crops and participate in transactions over 1 million. So while we're still kind of young, and space itself is young, the team itself brings a lot of experience and that's what we want to do, is put it to the use of more people.

Thomas Young:
That's fascinating. I didn't know Prudential was a big farmland investor.

Artem:
I think what happened, I need to go back to read my history. But as they went showing land and working with farmers, I think they came into some possession and then they started performing well and suddenly they realized there was a demand for it. So yeah, they are one of the contributors and one of the originators of the definitive NCREIF Farmland Index, kind of the same for S&P, there's an index for farmland.

Thomas Young:
I think that lends a lot of validity to the space that they might have stumbled upon it by happy accident. Well not for the farmers I'm sure. But that's a whole different story. But it does lend a lot of validity to space, that they recognized it as an opportunity, and then doubled and tripled down, and are now one of the biggest investors. So I'm curious, how does sort of the eat local, people are more wary of where their food's coming from. How has that led to the ... At the end of the day, the appreciation of the land, I mean, is that having a big effect or is it mostly just population growth and demand because of the population?

Artem:
Yeah, that is driving growth as well. If I can expand your question a little bit to also include organic and sustainable farming. So that is a relentless demand for organic, sustainable in the US and even more so globally. People in the world trust a lot of the US food brands, and you know people, let's say, China, as they become more affluent, they want to eat better, they want to know where their food comes from. So the US as a global powerhouse, that's why every government always wants to cater to the US agricultural sector. But coming back to the organic and sustainable movement, that is a big driver and we are very passionate part of it. Maybe a little context here, we part of the Indigo Territory Challenge, which has a big program with a lot of players in the US, and globally, to create a new standard for what's called regenerative agriculture.

That is agriculture that is sustainable use, uses fewer inputs, meaning output actually is more profitable, and it also recaptures carbon. So it's not just, the food is better for the environment. That's I think where be seeing tremendous inbound demand from investors. We see a lot of people that impact minded, sustainability-minded coming and saying, "Look, I want to do something with my money." So regenerative agriculture is something that we're working on, and we hope to have an offering in the second quarter of this year for people to invest. That is indeed is driving pockets of pricing for farmland, organic farmers especially.

Thomas Young:
Interesting. I have a question that just sort of popped up. As we mentioned earlier, you mentioned that roughly, I think 40% you said of farmland is rented?

Artem:
Yeah, and that's been the case for a long time. That's like a very stable number.

Thomas Young:
Okay, that's good to know. Then, as the price has gone up, are farmers being squeezed in any way? Or are they benefiting from this sort of boom as rental prices go up?

Artem:
It's very interesting. First of all, you have these dynamics between older generations and younger generations, right? It's the same dynamic playing out in places like housing, house prices go up, so I don't know Thomas if you are a proud homeowner. I'm not yet because-

Thomas Young:
I'm not either.

Artem:
There you go, right. So, and I live in San Francisco, so I don't think I'll ever be able to afford a house. You can buy a great farm for the price of a house in San Francisco. So you have this dynamic with younger farmers looking to get access to land and they can't because it's very expensive. Luckily USDA has some programs where the farmers, can get subsidized loans up to 600,000. There's a lot of different programs on state and federal levels because at the end of the day your farm is worth nothing if there's no farm to farm it.

But part of the reason that farmland prices have gone up is that farmers are the main players in the farm market right now. 90% of farmland is owned by families. So all the price appreciation you've seen, that's farmers bidding it up for each other. That's because commodity prices have gone upright? Farming, we go through cycles, but we just had a great cycle, 2010-14, where they have now with subdued pricing environment, hopefully, this deal with China will get prices back up. But overall farmers have done quite well in the last decade, say for some years, some regions. So they're buying land and prices keep going up.

Then even the farmers, because ... you kind of as an investor, you tend to gravitate towards that which you know better, right? So, farmers, they see farmland, they understand farming, right? It's the same as buying a house. They can go buy and invest in it, so farmers, oftentimes, and we have those clients on our platform. Farmers by farmland as an investment, right? And they'll rent it out. They will play around with it. I was just talking to a gentleman who said, "Hey, my buddy, he made so much money in Illinois farmland in the last 20 years. I want to do the same. I want to come to your platform and test." So you basically, the land appreciation has been farmers and the income from farming.

Thomas Young:That's good to hear that. So when you say that 40% of farmland is rented out, it's farmers renting it to other farmers?

Artem:

Yeah. Oftentimes you'll see. So some farmers don't own any land and they're venting and I hope that we'll have more programs to help those farmers get ownership. We want to work with the USDA to do some of that as well. But yes, it'll be, let's say farmers owning land and they will rent some of the lands out. They'll rent some land out and they'll own some land. So yeah, it's very much farmer to farmer, it depends where you are in the market, and that.

Thomas Young:
Right. I mean now, it's becoming very clear, the value, obviously what you guys are doing is valuable, but what you said about farmers knowing to farm and buying land, it seems like it's a really difficult space for someone that isn't a farmer, isn't in that network to get in on what seems to be a great investment? I guess that's what you guys are doing is its sort of democratizing that for people that, you know, I live in the middle of Austin, I haven't seen a farm in years. But that doesn't mean I wouldn't invest in it if I had away. So I guess that gets to the crux of what you guys were working on, which is fantastic.

Artem:
Yeah. But that's what we tried to bring, is that institutional quality, sourcing, underwriting, and network too.

Thomas Young:
Yeah, exactly. Democratize farmland investing, you couldn't put it better. So where should people, if they're thinking about investing through FarmTogether, what are some of the places that they can go to, to get some resources to learn about the asset class? I'm sure you guys have some great content, but where do you get educated on the space or do you have any like books or anything that people should be reading?

Artem:
Right, right. That's a good question. I have to say like we put out a pretty good white paper and we put research out on farmland investing. I would say that there's not really that much, and maybe we should write about it because there's not that much in the way of like ... there's a couple of books, right, but space is changing. I would say just going to the website of Nuveen. Nuveen is one of the oldest institutional investors in farmland. They put out good materials. They also might have creators and contributors to their farmland NCREIF Index. But look, we do webinars all the time. Every week we have recordings, we have white papers, you can schedule calls with us. We love educating people. Were doing this so they can listen to your podcast.

Thomas Young:
Absolutely. Well, I think that's what makes it such a good opportunity with what you guys are working on. But, because there's not this central, we'll call it a Wikipedia of farmland investing, for example. Whenever you find those asset classes that are underserved, just truly from an education level, it usually means that there's an opportunity there. For us, that's true in self-directed space. There's education out there, there's a lot of opinions about it, there's a lot of voices, and I feel like that's probably true with you guys. So the fact that someone can go to you guys, get on one of your webinars, read your white papers and get an education. I think that's tapping into an opportunity because where there's a gap, there's an opportunity.

Artem:
That's right. I mean investing is all about finding things that people are not looking at it, right? If everyone knows it's a good investment, it's probably not a good investment for you anymore because it's been priced out.

Thomas Young:
What's the saying? That when you hear about stocks and in your hair salon, it's time to sell?

Artem:
Yeah, yeah, yeah. When your shoeshine boy starts giving you stock tips, it's time to sell. It was the case with crypto because I was right in the center of this, and then suddenly, people that have nothing to do with anything investing or tech-related started doing podcasts and YouTube channels on how to invest in crypto. I'm like, "All right, I am out of here."

Thomas Young:
Right, right. It's important to find your thought leaders in space and sort of ... I mean, I see it as, instead of bouncing around from several different opinions, and its pick sort of who your resources and then, and then stick to one mantra, if you will, theory what, whatever it might be, because it's easy to go around in circles, with anything, right? Whether it's angel investing, or crypto investing, or farmland investing, or stocks it, you have to sort of pick your mentor, pick your path and then stick to it and not get distracted by every shiny object that comes along.

Artem:
Yeah. I think that's where a kind of my whole philosophy of investing, and coming back to the kind of things that's real. I take off to Warren Buffett and one of his best investments I think was a farm, is that it's always about like what's the true intrinsic value, right? What is that true value? Things go up and down in cycles about true things remain, and reality reasserts itself one way or another. The reality is that we all need to eat, and farmland is the way to do it unless we become AI robots until then, and then there'll be solar farms, right? Which is some upside that you can get from farms, wind, and solar leases?

Thomas Young:
Yeah, absolutely. I love that. I mean, for me it just makes so much sense. Like even if there's another recession or depression, people are still going to have to live someplace and they're still going to have to eat. If we get past that, then we're really in trouble.

Artem:
So I must have a question for you. How do you think farmland performed during the last great financial crisis, the recession of 2008/09?
Thomas Young:
I would imagine that it didn't perform as badly as real estate, but I don't know, down 10-15%?

Artem:
It was up 23% from Q4 2007 to Q4 2009, the NCREIF Farmland Index.

Thomas Young:
Really?

Artem:
Yes.

Thomas Young:
Why? Why, why that much?

Artem:
Well, you partially, you had kind of the more secular trends happening, but also because of the flight to safety, right? If you have seen the Big Short, seen Michael Berry, after doing like his fund, and he kind of quits, Christian Bale plays him, he moved to Mountain View, here in Bay Area, and started investing in the farms and water.

Thomas Young:
Oh, that's right. Yeah, they do say that in the credits, right? That he was an ag investor. Yeah. I mean, that makes a lot of sense. It's something that we talk about a lot too, that whenever the next recession does come like you said, a flight to safety and it's going to be raw land. It's going to be an alternative asset. It's going to be precious metals. It's going to be, I mean, the crypto will probably spike again in a dramatic way, but that's fascinating. That's a really interesting stat that I should have thought about more before I opened my mouth.

Artem:
No, no, no. It's a natural thing, right? Because during the financial crisis, everything was down, people took anything safe. Everything was down.

Thomas Young:
Right. So I'm curious as you guys are in the early stages of your growth and of your company, what are you guys working on this year and in the next few years as FarmTogether continues to grow?

Artem:
Look, it's reaching more people and doing more deals and more investments, better investments. So we'll have that regenerative offering coming up, we'll have organic, we'll have row crops and permanent crops. We target returns anywhere from as low as 7% for something that we deem to be very safe, too as high as 15-20 and percent for some more exciting kind of high risk, high reward stuff. Cash shields from 3%, to again, 12-15%, and then look, we're excited about this partnership. We want to reach the IRA accounts, we want to reach more people that are thinking about retirement planning, farmland is fitted well for that. It's well, that longterm investment horizon and we have people that want to hold land for like 10-20 more years, across the generational wealth. So really excited about this partnership and think that you guys have a lot of savvy smart investors. So we'd like to do more of that.

Thomas Young:
Yeah. I think there's such a natural overlap between our two audiences because like you said, our customers are savvy, and they know that they want something in addition to the traditional stocks and bonds, and real estate and specifically farmland it just pops up more and more in the last six, seven weeks. I think I've heard of more about it than I have in the last two years.

Artem:
Really?

Thomas Young:
Yeah, it's an interesting time.

Artem:
It's happening. It's happening.

Thomas Young:
No, it's fascinating and I'm fascinated to learn more about it and you can bet I'll be on FarmTogether in the next hour.

Artem:
Fantastic. Sounds good.

Thomas Young:
But I'm excited to follow all progress and learn more about what you guys are doing. But so Artem just to wrap it, up to how can people get in touch with you and FarmTogether and how can they learn more about you guys specifically?

Artem:
Yeah, absolutely. So FarmTogether.com, we have info@farmtogether.com and Artem, A-R-T-E-M, artmen@farmTogether.com is our emails. Also the phone number on the website. We read all our emails, we answer or return every phone call. We're all about talking to our investors. There's no time in the day we would not do that. Call us weekends, call us evenings, call us mornings, call us night. We try to put out educational materials and webinars frequently. We have news articles coming out as well, so please, Thomas will be looking out for you coming through. Check out our Mandarin orchard, that one is going to fast, so act while the supply lasts as they say. Yeah, excited to see your audience on our platform.

Thomas Young:
Fantastic, and you can bet they'll be there. Artem, thanks again.

Artem:
Thank you, Thomas.