Expanding U.S. Farmland Access: Opportunities for Institutional and Individual Investors

Amid today’s heightened economic uncertainty, investors are seeking assets that provide stability, diversification, and resilience. Despite this increased interest in alternatives, U.S. farmland has remained largely underutilized, with institutional investors holding only a small fraction of the $3.3 trillion market. However, farmland’s strong fundamentals, potential for long-term returns, and improved accessibility are drawing renewed attention, making it an attractive option for those looking to diversify beyond traditional asset classes.

Evolving Dynamics in Private Markets

Private markets—encompassing private equity, venture capital, private credit, and real estate—have continued to expand over the past decade, driven by a confluence of factors including increased capital flows from sovereign wealth funds, institutional pension funds, and, more recently, family offices and ultra-high-net-worth individuals (UHNWIs). As of mid-2024, global private capital assets under management (AUM) have risen to approximately $14.7 trillion, reflecting their growing prominence in the global financial landscape.

This surge in interest can be attributed to several key drivers. For one, private markets have historically offered the potential for superior risk-adjusted returns and enhanced diversification relative to traditional asset classes. These benefits have become particularly pronounced in a market environment characterized by heightened volatility and macroeconomic uncertainty. Furthermore, the shifting sentiment around the conventional 60/40 portfolio strategy—following its steep 16% decline in 2022, the worst performance in a century—has catalyzed a reevaluation of how investors approach portfolio construction. With many seeking alternative ways to balance growth and risk, private markets have emerged as an attractive option for those looking to diversify beyond publicly traded equities and fixed income.

In tandem, advancements in investment platforms have further democratized access to alternative assets. Platforms like Yieldstreet provide a streamlined experience for investors to explore asset classes ranging from real estate to structured credit, while specialized platforms like Vinovest and Lobus facilitate access to fine wine and fine art, respectively. These innovations have made it easier for a broader array of investors to diversify beyond traditional asset classes.

Farmland: An Underutilized and Untapped Market Segment

Over the past decade, institutional interest in farmland has gradually increased, with entities like pension funds and tax-exempt organizations allocating an estimated $15 billion into farmland investments. This has brought the total institutional stake in U.S. farmland to approximately $26 billion, with notable players such as Nuveen and Prudential (PGIM Real Estate) leading the way. Hancock, now part of Manulife Investment Management, is also a significant participant with a focus on both timberland and farmland assets. Despite this growing interest, however institutional investors still hold just 2% of the $3 trillion U.S. farmland market, leaving substantial opportunities for further investment.

Challenges in Sourcing Farmland

While interest in farmland as an investment is rising, various challenges have limited its widespread adoption. High levels of off-market transactions, smaller average deal sizes, and the complexity of farm management have created hurdles for investors:

• Off-Market Transactions: Approximately 30% of American farmland is owned by non-operators who lease it to farmers. Nearly two-thirds of all sales occur off-market, limiting the visibility of potential deals to institutional investors.
• Size Constraints: Most U.S. farms are valued under $10 million per FarmTogether estimates, which falls below the target range for many large institutions, leading to difficulties in sourcing deals that meet investment criteria.
• Information Barriers: Farmland investments require granular, localized knowledge for accurate underwriting and valuation—expertise that many asset managers lack. This information asymmetry has hindered their ability to properly value farmland and, in turn, transact.
• Operational Complexity: Managing farm operations and identifying skilled operators for specific crop types and regions presents additional challenges for investors.

Barriers to Entry for Individual and Institutional Investors

In addition to sourcing and management challenges, several investment vehicles have historically faced limitations when it comes to accessing farmland:

• Pension Plans: While pension plans offer a range of investment products, they typically lack the granularity to address specific investor preferences, such as selecting certain types of crops or regions.
• Private Equity Funds: High upfront costs and limited control over property choices can be deterrents for investors. Moreover, the leveraging strategies employed by some funds can introduce additional risks, including potential defaults.
• Real Estate Investment Trusts (REITs): REITs can be highly susceptible to market and interest rate shifts, introducing volatility into their performance. The reliance on dividends, which fluctuate with the health of underlying assets, also limits investor influence over property management.
• Agriculture ETFs: ETFs linked to agricultural commodities have faced significant volatility due to unpredictable supply and demand dynamics. Additionally, high expense ratios and liquidity issues have led to wider bid/ask spreads.
• Outright Ownership of Land: Direct ownership of farmland provides a high level of control but comes with substantial capital requirements and the need for active management. Without leasing or developing the land, it can become a resource drain without immediate returns.

Positioning Farmland within Private Markets

Addressing the challenges of sourcing and accessibility requires innovative solutions, such as targeting smaller deals and leveraging technology to identify investment opportunities. This more nuanced approach can help open up farmland to a broader range of investors and increase its appeal as a viable component of diversified portfolios.

Approaching Smaller Deals to Address Market Inefficiencies

Investing in farmland often involves navigating market inefficiencies related to deal sourcing and structuring. Unlike institutional investors that primarily focus on large-scale transactions exceeding $20 million, a strategic focus on small-to-medium-sized farms, valued between $2 million and $15 million, can open up more opportunities. This segment accounts for a significant portion of U.S. farmland transactions, which are expected to increase as nearly 70% of farmland changes hands over the next two decades due to an aging farmer population.

The use of technology, such as proprietary sourcing tools that leverage data analytics, satellite imagery, and machine learning, can help identify potential investments in this fragmented market. By building a robust pipeline of smaller transactions, firms can be more selective in pursuing opportunities that align with specific geographies, commodities, and investment criteria.

Leveraging Industry Expertise and Strategic Partnerships

Deep industry expertise and established networks within the agricultural sector are critical to navigating the complexities of farmland investments. Partnering with experienced operators and industry leaders provides access to off-market deals and offers valuable insights into regional market dynamics and operational considerations. These partnerships can play a pivotal role throughout the underwriting and management process, helping mitigate risks and optimize returns.

Tailored Solutions for Diverse Investor Needs

The nuanced nature of farmland investing calls for flexible investment solutions that cater to diverse investor objectives. Customizing deal structures, risk profiles, and holding durations can accommodate varying investor preferences—whether the goal is long-term capital appreciation or stable, income-generating assets. Structured offerings, such as crowdfunded deals, farmland-focused funds, and Tenancy in Common (TIC) products, provide different levels of exposure and participation options, enabling investors to integrate farmland into their portfolios more effectively.

Looking Ahead: The Transformational Shift in Farmland Accessibility

Despite being underrepresented within private markets, farmland is experiencing a gradual shift in accessibility. New investment models are providing investors with easier entry points and a more streamlined approach to building diversified portfolios that include this asset class. As farmland continues to gain visibility, its role within private markets is expected to expand, offering a unique investment opportunity aligned with sustainability, food security, and long-term value creation.