According to the US Department of Agriculture, farms owned by institutional investors are now responsible for more than 12% of the total food output in America. That might not sound like a whole lot, but the value of farmland investments has more than doubled since 2020 alone. Cascade Investment is an investment firm that reportedly employs over 100 analysts and operates exclusively to manage the assets of Bill Gates and his ex-wife Melinda. It owns assets like a 71% stake in the Four Seasons Hotel chain and 14% of the Canadian National Railway, but it also owns a quarter of a million acres of farmland. The farmland is owned through a series of smaller holding companies, but when asked why they had bought so much farmland, the firm simply suggested that it was a good investment, nothing more. Many outlets have claimed that this makes Bill Gates the largest landowner in America, but that's simply not true, not by a long shot. Major investment companies and even other billionaires have invested so much into farmland over

the last two decades that it makes Gates's 250,000 acres look positively pathetic. So why have cornfields become the hottest asset amongst the big boys on Wall Street? Investors are buying up farmland across America, and critics say it's pushing out the small family farmer, but advocates say it's propping up the market. John Malone, the largest private landowner in America, owns 2.2 million acres all by himself. Why do you think Bill Gates is buying up all this land? Reportedly purchased more than 200,000 acres in 18 states. Farming has typically been done by families who own their own farm and work on the land themselves, with or without the help of additional labor during harvest. Despite the rapid growth of financial investors into farmland, most farming is still done this way. But exactly how much is really hard to tell. According to the Economic Research Service of the US Department of Agriculture, just over 60% of farmland is owner-operated, and the remainder is rented to the farmers that work the land.

this doesn't tell the full story, though, because while owner-operated farms may evoke imagery of small-time family farmers, it can include institutional operators that also happen to own the land. Similarly, some families rent out their land to external operators, either because they can't productively use the land themselves, they don't have enough land to achieve economies of scale, or because they would rather the more passive rental income stream than stressing over a harvest. These agreements can vary from state to state and individual to individual. Some agreements could be a little more than a handshake between two local landowners, and plenty involve corporate lawyers representing the interest of an institutional agricultural real estate investor and another team of lawyers representing the interest of an institutional food production company. The final thing that makes it hard to assess just how much farmland has become a financial asset is that most farmers will incorporate even small farms as a business because that's exactly what they are. So even small hobby farms will have effectively the same business.

structure as a massive commercial farm, which is part of a portfolio of farms owned by a family office from a major city. It's these very conditions, though, that have made farming so attractive to big investors for four reasons. The first is that it's an amazing opportunity to consolidate and scale. Farming is a business that gains tremendous efficiencies from scale. A small 100-acre family farm is going to have a lot of the same fixed costs as a 10,000-acre commercial farm, squeezing their margins from commodity products. Large commercial farms also have more negotiating power over expenses like seed, fertilizer, pesticides, equipment rental, fuel, labor, and even interest on their loans, because large commercial borrowers will normally have access to more favorable lending facilities than small family farms going to their local community bank. According to the most recent USDA farm production expenditure summary, these were the topline items for most farms, which run on razor-thin operating margins. Just 10% of small family farms have an operating profit margin above 25%, a share which has haved over the last decade. If the

family is operating the farm themselves. That can mean that even if there is profit left over at the end of the year, it would equate to less than minimum wage for the people working the land. The Wall Street solution has SP to buy up lots of small, relatively inefficient Family Farms and turn them into one big farm with wider operating margins. The number of individual farms in America has been on a steady decline since the Great Depression, but the total number of acres dedicated to farming has remained stable, which means farms have simply been getting bigger. Now, just because a business is changing doesn't automatically make it a bad thing. These larger farms, on top of being more efficient businesses, also have more capital to invest into technology. According to a McKenzie industry survey, less than 5% of farmers in North America are adequately investing into new technologies, and often that's because they can't. Another report by The Firm found that fully automated systems could quadruple returns on the farmland. The only problem is if you wanted to buy the equipment they were studying and use

it on your own family farm. It would cost you at least $350,000 if you were prudent and purchased it used. Small family farmers cannot afford that without further putting themselves into debt. But the idea of quadrupling ROIs is enough to pitch investment in any investment firm, who would happily allocate the money. This business strategy is right out of the private equity playbook of rolling up lots of smaller businesses into one larger business that has shared overhead and more market power. This could mean more investment into technology to lower food prices for everybody, or it could be used to widen margins for investors. But even in a perfect world, the benefits of what they can do with some business optimization has nothing over the advantage that farms have as an investment when it comes to debt and tax minimization. So it's time to learn how many works to find out how farms became the perfect buy-and-hold asset and what it means for everybody else once they are all bought and held. This week's video is sponsored by Delete Me. Delete

me is a hands-free service that helps you remove your personal information from data broker websites. These brokers collect and sell your data, things like your name, address, and phone number, without you even knowing. With Delete Me, privacy experts find and remove your data from hundreds of these sites. They also monitor and make sure your information doesn't pop up again. Personally, I love how easy it is. I've been using Delete Me to protect my privacy and got a full report showing where my data was removed. It's a relief knowing my info isn't floating around online. And if you're worried about your family, they've got plans to protect them too. Take control of your privacy by heading to join Delete Me.com/hmw and use code hmw for 20% off. Links are in the description below to investors. Farms are effectively just commercial property assets like office buildings, warehouses, or retail precincts. They can purchase the real estate and use it to run their own business on the land, or they can rent it out to actual farmers like they would.

rent out a floor of an office building to a law firm. The difference with Farmland is that even in bad markets, when companies are closing down offices and people are spending less in retail centers, they still need to eat, and so Farms have been seen as a largely uncorrelated asset class to traditional real estate for a long time. Ray Croc was the man who scaled the McDonald's business from a small family operation into the multinational company it is today. The success really started when an associate of his, Harry Sorn, told him that he wasn't in the burger business; he was in the real estate business. The restaurants that sit on top of the land are just cash flow generators, but the real money was to be made in owning the land itself, or at least that's how the story goes. Today, McDonald's only owns about 45% of the land it operates on worldwide, as smaller restaurants like those found inside shopping malls, train stations, and airports have become just as common as the traditional standalone operations. Farmland is really the same; investors

don't care about farming. They are only interested in the value of the land itself. The profitability of the farm that operates on the land just helps to pay the loans they use to buy it. And that's the second reason why farmland has become so popular amongst large investors. In another trick from the private equity playbook, the thing that has made farmland so attractive is that it's a business and real estate rolled into one, which makes it perfect for a leverage buyout. An investor with $100 million could buy just one single large farm and happily rent it out for a month ROI, or they could take their $100 million and use it to effectively put down payments on five farms and then borrow the remaining $400 million to have a portfolio of land five times as large. With a bit of cost-cutting and some investments into technology, the farm should be able to cover the repayments on this debt. And now the investors could stand a profit five times as much if their land appreciates in value by the same amount. This is

effectively a leverage buyout, but the difference is that it can sometimes be hard for businesses to borrow money. But because most of a farm's value is in its land, it's a lot easier to get leverage because the land itself can be used as collateral. Counterintuitively, this highly leveraged investment structure can actually be less risky than the more conservative investor who just pays all cash. Just like a leverage buyout, each individual farm is responsible for its own $80 million share of the loan. So if one is managed poorly or is impacted by a natural disaster, it can just go bankrupt and only lose the investor $20 million in the situation of a total write-off. That's still a lot of money, but it's only a fifth of what the investor would be risking if they put their entire investment into one unleveraged farm. Now, this gives sophisticated investors a significant advantage over traditional family farmers who do simply own their own single farm, and that's further fueled this investment trend. According to data from the Department of

Agriculture. Farmland values have reached all-time highs. The average acre of farmland is worth almost double what it was in the farmland bubble of the 1980s, even after adjusting for inflation. The business of farming has been harder than ever over the last decade in most parts of the country. There have been droughts, natural disasters, ballooning chemical costs, monopolistic behaviors from equipment suppliers, increasingly expensive water rights, rules tightening access to credit for regular borrowing. It is a problem that's been plaguing America's farmers. The tractors, planters, and other gear they rely on can sometimes break down, but in many cases, they are not able or even permitted to make repairs. Farm bankruptcies are down from their peak in 2019, but that has been helped a lot by generous government support and low interest rates. As the support programs have been wound back and rates have risen, normal farmers are starting to realize the reality that their business model just isn't viable anymore. According to a report by Time Magazine, before these disruptions, more

than half of all farmers had lost money every year since 2013. Small-scale farming is running on tighter margins than ever, while land values are at an all-time high. So, big institutional buyers have had no shortage of smaller sellers who are being forced to or are willingly deciding to get out at a good price. Now, the image of good old-fashioned American farmers giving up their land as some billionaires or faceless investment fund is not very appealing, but unfortunately, that's the way most businesses have gone over the last century. If anything, farming is just now catching up because the march of progress has been slowed down by a lot of governmental programs and subsidies that have kept one of the last widespread family businesses operating longer than they otherwise would have. Bigger is better, and the market is starting to reflect this reality. Pasture land, which is land for grazing livestock as opposed to crop land, which is for growing rows of crops, has increased in value even faster. This land is a lot less carefully managed than crop land, and it doesn't need to be.

on a nice flat ground to allow for mechanical harvesting. So, it's worth substantially less per acre, but its value has been growing faster. And this type of land makes up a majority share of the portfolios of the people who are actually the largest landowners in America. The Emerson family, who currently own 2.4 million acres of land in California, Oregon, and Washington, primarily use it for lumber farming. The remaining top 10 are mainly cattle ranchers. Bill Gates, on the other hand, only owns about a tenth of this, with about 275,000 acres, which makes him the 42nd largest private landowner in America. It also puts him behind Jeff Bezos, who has 420,000 acres, according to the annual land report survey. So, do better, Bill. Now, right there is probably the least obvious and most underestimated reason why farms have become such a popular investment so quickly. Billionaires and even institutional investors are not above the temptations of human nature. Farmland values have been spiking, and within these small circles, nobody wants

to be left out of the big new investment opportunity. Owning land is like owning anything. Some people just want to see the number go up. If you were a billionaire and you could ignore the potential implications of owning that much of a vital resource as an asset line, you got to admit it would be pretty cool to own more land than Puerto Rico. As money has moved into the market, it has further increased prices, making people even more excited to claim their own share of America. It's like crypto, only instead of doing absolutely nothing, it feeds the country. Farmers don't have that much control over the market price of their produce because there has typically been so much competition and only a small handful of buyers. One of the biggest implications of this farmland consolidation is that this dynamic could reverse. Go and watch this video on why everything has become a monopoly to find out why that could become the only viable business model for these mega farms. And if you want to get these videos a day early alongside articles that will never be made into

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Wall Street's Dangerous New Obsession With Farmland

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Wall Street's Dangerous New Obsession With Farmland

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