Geographic Diversification Within Farmland Investing
When it comes to agriculture, every US state is different. Each state is defined by its own unique mix of variation in climate and natural resources, and these factors influence both the sizes and types of farms you’ll find there, along with the industry environment that supports that state’s farm economy.
Given the variation in agriculture within each state, diversifying your farmland portfolio across multiple states can provide many benefits. As an investor, owning farmland in multiple states can provide you with income year-round, and lend downside protection to returns over time by spreading risk across various climates and geographies.
At FarmTogether we understand the value of total due diligence, deep underwriting of potential investments, and other basics that control the risk of the properties offered on our platform. We are committed to offering only investments that meet our stringent criteria. However, not all risk can be mitigated by a stringent due diligence process, and diversifying your investment dollars not only across a range of assets, but also within an asset and across farmland properties, can help mitigate these potential risks.
In our previous article we discussed diversification across farmland management structure and crop type. In this piece we'll dive deep into the how and why of geographic diversification within farmland investing.
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What Defines Agriculture in Each State?
At FarmTogether, we take into account climate change, water availability, regional market trends, regulatory landscapes, and long-term trends in agricultural yields when sourcing properties. We also look for an experienced community of operators within that region, and a surrounding industry ecosystem supporting the crops we are interested in growing.
Overall, less than 3% of properties that come through our pipeline meet our stringent criteria and are eventually offered on our platform. Accordingly, while each of our properties represents a compelling investment opportunity, we believe the strongest portfolios are ones that incorporate multiple farmland investments in different states.
Below you’ll find a breakdown of the states in which you can find a selection of deals from FarmTogether’s management portfolio; understanding the unique differences state-by-state can help our investors create a well-rounded farmland portfolio.
Each of the west coast states - California, Oregon, and Washington - contains a substantial portion of land considered to be part of the US’s “Fruitful Rim”. This region is prized for its unique suitability to support fruits, nuts, and vegetables. Climate and soil are two of the main factors contributing to the West Coast’s ability to host these types of crops.
Each of these states contain regions with long, hot, and dry summers, consistent sunlight, and a mix of well-drained loamy soils. They also have a robust infrastructure in place that facilitates irrigation, which is necessary given their less frequent summer rainfall compared to other states in the midwest and plains, such as Illinois or Oklahoma.
Let’s begin with California and what makes this state a particularly strong agricultural powerhouse.
In terms of the sheer variety of agriculture it supports, California is unlike any other state in the US. Farmland in California - particularly irrigated cropland - is among the most valuable in the country; it is one of the most productive agricultural regions on Earth and home to some of the country’s highest value crops, such as nuts, wine and other specialty fruit. While it’s nothing new that our nation’s most variable climate is more prone to droughts than other states, California’s climate is in fact required and conducive to the growth of certain crops. Thus, while California’s water governance landscape evolves, the state will remain an incredibly valuable investment opportunity due to the fact that other state’s simply cannot support the crops inherent to California.
The state’s Mediterranean climate, consisting of dry summers and mild winters, makes it perfect for the production of most fruit and tree nuts. In fact, California produces nearly two-thirds of the nation’s fruits and nuts, including almonds, peaches, grapes, pistachios, and walnuts. In regards to almonds specifically, California produces more than 80% of the global almond crop, which together with most other tree nuts has been increasing in value thanks to surging global demand. The Almond Board of California, in turn, has become one of the strongest state industry associations in agriculture for its efforts in marketing California almonds, its support for research and extension, and its sustainability programs.
As mentioned above however, almonds are far from California’s only significant crop; numerous agricultural industries owe the bulk of their production to California’s farms and prove California’s exemplary potential as a global powerhouse. The Central Valley’s ‘Citrus Belt’, for example, is such a uniquely suitable climate for citrus production that the groves in the Citrus Belt have driven California to overtake Florida as the nation’s leading citrus producer. In addition to leading almond and citrus production, California is a standout producer of walnuts and pistachios, is the nation’s leading producer of table grapes and wine grapes, and one of the leading producers of berries and vegetable crops.
Sitting between California and Washington, the state of Oregon is positioned to host a unique variety of farms. It shares climate characteristics with both California’s central valley and Washington’s more temperate Columbia River basin. This unique mix has led Oregon to be the nationwide leader of blackberries, hazelnuts, peppermint, cranberries, and rhubarb, as well as one of the leaders in production of apples, wine grapes, stone fruit, and more.
Oregon’s leading agricultural region is the Willamette Valley, which stretches from Portland on the north to Eugene in the south. Though further north and with a shorter overall growing season than California, the ample sunshine, stronger water resources, and hot, dry summers lend this region especially well to the production of an extensive variety of crops, as listed above. Surrounding the Willamette Valley are a number of other smaller river valleys that are home to similarly productive land, including the Umpqua Valley.
Both the Umpqua and Willamette Valleys are home to an increasingly diverse and well-known wine production industry. An extensive diversity of soil types suitable for wine production lends Oregon well to producing very unique red and white wine grapes, which have been growing in demand among winemakers both in and out of state. This includes certain varieties that were previously known for their production in California’s Napa and Sonoma counties - in fact, Oregon’s unique climate and soils lend a specific flavor profile to these wines that is increasingly sought-after among consumers.
Tree nuts and tree fruit are also very common in this region, specifically hazelnuts, stone fruit, and apples. Hazelnuts are an example of a fairly new commercial crop in the US, and found their way to Oregon specifically due to the state’s uniquely suitable climate for specific hazelnut varieties. Since they arrived, Oregon’s Hazelnut Industry has become the most well-established in the country.
In addition, a wide variety of annual crops are grown here, including commodity grains and other crops like leafy green vegetables and berries. Last but certainly not least, this region is an exciting frontier for crops newer to the United States.
Continuing north, Washington State rounds out the West Coast states with its own uniquely strong crop profile and production track record. In particular, Eastern Washington’s Columbia River Basin is home to some of the most prolific tree fruit production in the world. The region’s nutrient-rich soils and semi-arid and wet climate make it specifically well-suited for the production of tree fruit that may not fare as well further south, such as apples, pears and cherries.
In fact, Washington accounts for more than 70% of US apple production, producing more apples than any other state. Growers enjoy ample support from a very strong apple industry, through organizations like the Washington Apple Commission, who have built incredible capacity to support access for growers to both domestic and international markets. Meanwhile, the tree fruit production research and extension emanating from Washington State University have equipped growers with invaluable knowledge of production techniques and sustainable management practices, as well as the ability to leverage research into new varieties. Many of the most successful new consumer varieties rolled out in the last decade, such as Cosmic Crisp, have been developed specifically for production in Washington.
Aside from Apples, Washington is also the country’s largest producer of sweet cherries, blueberries, pears, and several other crops found only sparingly throughout the rest of the country, such as hops and spearmint. Though grown in other states, Washington is the clear leader in each of these crops in the US, as they benefit from the same climate and soil characteristics that make Washington so suitable for apples.
Finally, while less significant in a national context, Washington does also produce a substantial quantity of stone fruit, wine grapes, a variety of grain crops, and various annual vegetable crops like asparagus and onions that grow in more temperate climates.
One of the most quintessential agricultural regions in the United States is the South-Central Plains - Arkansas, Louisiana, Oklahoma and Texas. These states are defined by their vast expanse of nutrient-rich prairie soils and climate that bridges the arid southwest and the more humid, rainy Mississippi River delta, which has lent itself to the region’s widespread production of grain crops and pasture-raised livestock.
Oklahoma has an expansive and storied farming landscape that consists today of several types of farmland; it is one of the country's leading producers of wheat, rye, barley, and hay, as well as various livestock products.The state is also a substantial producer of corn and soybeans, peaches, peanuts, and watermelons, and is an increasingly popular region for pecans.
The state’s historical emphasis on the production of grain crops and pasture-raised livestock stems from its origins as a prairie state - farming systems that blended naturally in with the tall- and short-grass prairies were the original standouts in Oklahoma and have largely remained the most significant forms of agriculture across the state.
Still, it is no secret that our ongoing climate emergency is reshaping specific regions’ suitability for certain crops. As this trend plays out, some states will see their emphasis on certain crops decline, and refocus specific regions on crops becoming more suitable to the change in climate.
Pecans in Oklahoma are a good present-day case study in this phenomenon, as the zones of ideal climate suitability for pecan production are shifting. Though grown commercially in many states across the country, the ideal environment for pecan production combines the ample rainfall of the southeast with the consistent sunshine and low average humidity of the semi-arid southwest. Rainfall reduces reliance on irrigation, consistent sunlight encourages rapid vegetative growth, and low humidity reduces disease pressure. Though New Mexico has historically been the best combination of these factors and remains an extremely attractive pecan-producing area unto itself, the zone of coincidence of these climate variables is slowly but surely moving east, bringing Oklahoma into focus as a leading candidate for excellent pecan production.
Oklahoma, together with north Texas, constitutes a uniquely strong pecan production and marketing region. Leading research and marketing institutions such as the Noble Foundation and the American Pecan Council, both of which are headquartered in north Texas, are among the leaders in promoting the production of “improved” pecan cultivars, a new group of varieties that have been specifically bred for disease and pest resistance, flavor, and yield, and that are transforming pecan production in Oklahoma and across the country.
Midwest - The “Heartland”
Often referred to as the “Corn Belt”, the Midwest states - including Illinois, Indiana, Iowa and many others - is perhaps the region most credited with giving the United States its reputation as the breadbasket of the world. No other region produces more corn and soybeans, which are by far the most popular crops in this part of the country. Still, this region is also known for a variety of livestock farms, as well as wheat, rye, oats, and other grain crops.
Located in the heart of the Corn Belt, it is no surprise that Illinois agriculture is best known for corn and soybeans. Illinois is the second-leading producer of corn nationwide, after Iowa, and comprises both a prized set of soil types for row crops as well as a climate in which rainfall can satisfy an outsize portion of corn’s and soybeans’ water demand.
The dominance of row crops in Illinois, as in the rest of the corn belt, is rooted in the region’s soils. Midwest soils are famously fertile, consisting of a mix of glacially-deposited nutrients left over from the last ice age and a layer of mineral-rich topsoil referred to as “loess.” This loess layer, which is deposited by winds sweeping the upper great plains, can be up to 60 meters thick in some parts of Illinois, and has blessed the state’s farmers with some of the strongest corn and soybean yields per acre in the entire country.
Climate-wise, Illinois and the broader Corn Belt more closely resemble the cooler climate of the upper midwest. Winters in Illinois are colder, and start earlier in the year, than they do in states like Oklahoma, and the year-round climate is also much wetter on average than any state in the West. This wetter climate is a key feature of the state’s agriculture and highlights its attractiveness as a diversification option - rainfall in Illinois often satisfies a majority of the water demand for its main crops, so farms rely much less on irrigation.
Aside from corn and soybeans, Illinois also produces significant quantities of wheat, hay, oats, buckwheat, sorghum and other row crops, along with a variety of livestock products. Row crop production has been a feature of Illinois’ economy and landscape ever since the late 1800s and will remain one of the country’s strongest agricultural industries for decades to come.
Why Diversify Across Geographies?
Agricultural land has been a historically stable investment with attractive returns. Yet, as you have discovered, each region comes with it’s own unique set of risks. Crop prices fluctuate with supply and demand, and environmental factors exert a strong influence on production trends. Thus, the geographic concentration of your portfolio could cause it to be more susceptible to adverse weather conditions, market fluctuations, and economic or regulatory changes. On the other hand, each region and individual state’s distinctive characteristics are essential to support the growth of various types of crops, which are directly reliant on that specific states' conditions. These differences provide investors with exposure to a wide range of crop types, from specialty nuts to staples like wheat and corn.
With geographic diversity, investors can spread climate- or other production-related risks across multiple regions and stand to benefit from shifts in industry focus at the local level, while also leveraging a range of deal structures common to specific places for added risk management. Ultimately, by diversifying your farmland holdings in several states, investors tend to set portfolios up for more consistent long-term returns.
Disclaimer: FarmTogether is not a registered broker-dealer, investment adviser or investment manager. FarmTogether does not provide tax, legal or investment advice. This material has been prepared for informational and educational purposes only. You should consult your own tax, legal and investment advisors before engaging in any transaction.