Garrott McClintock, AcreTrader - Live From The 2021 Farmland Investing Summit! | #377

Episode Summary

Executive Summary: This live episode centers on farmland as a compelling real-asset investment, using AcreTrader’s model to explain how farmland is sourced, underwritten, leased, and potentially diversified. Garrett McClintock and Meb Faber discuss land vs. farm ownership, macro tailwinds like inflation and urbanization, downside risks tied to geography and water, and the long-term mission to make farmland investing transparent, accessible, and farmer-aligned.

Main Topics: Farmland as a real-asset portfolio sleeve (Priority: 5/5): The hosts frame farmland as a major missing piece in global asset allocation, alongside stocks, bonds, and real estate. They connect it to long-term diversification, inflation protection, and real returns. How AcreTrader sources and structures deals (Priority: 5/5): Garrett explains that AcreTrader talks to thousands of farmers, buys land, and leases it back under models that align incentives among investors, farmers, and brokers. The platform is designed to improve the industry, not just package securities. Incentives, alignment, and farmer partnership (Priority: 4/5): A major theme is separating the land from the operating business and designing structures where farmers can co-invest, lease long-term, and benefit from upside. This is presented as a better model than purely passive ownership. Risks, drawdowns, and geography-specific diligence (Priority: 4/5): The conversation covers the main risks to farmland: local water issues, aquifer depletion, weak farming communities, and region-specific problems more than broad macro collapse. The team emphasizes rigorous underwriting and high rejection rates. Technology, data, and the future of agriculture (Priority: 3/5): They discuss ag-tech, data science, automation, and how technology may improve farm operations without replacing human expertise. The team sees tech as supportive, but not yet capable of fully automating farmland selection. Crop mix, diversification, and future product expansion (Priority: 3/5): The episode explores row crops versus permanent crops, potential future funds or aggregated strategies, and other land-linked opportunities such as solar, wind, hunting rights, timber, and value-added products. Long-term industry change and access (Priority: 5/5): AcreTrader’s mission is presented as making farmland buying and selling common, transparent, and easy, while opening access to smaller investors and creating more opportunity for farmers as ownership transfers over time.

Key Arguments: Farmland is a major global asset class that is historically hard for individuals to access, making it an investable ‘missing piece’ in portfolio construction. The best farmland model separates ownership of land from operation of the farm, because farmers often lease most of their acreage rather than own it outright. AcreTrader’s customers are not just investors; farmers and brokers are also core customers whose incentives must be aligned for the platform to scale. Farmland appeals to investors for multiple reasons: inflation protection, diversification, real-asset exposure, and potential capital appreciation plus income. The main risk is usually micro and local, not a collapse in farmland broadly—issues like aquifer depletion, water rights, and regional farming viability matter most. Long-term leases and co-investment structures help avoid short-term behavior that could harm soil health and long-run asset quality. Technology can improve analysis and operations, but farmland decisions still require on-the-ground expertise and farmer input. Diversification should be thought about by geography and crop type; row crops provide steadier exposure, while permanent crops can offer higher volatility and upside. Illiquidity is framed as a feature for long-horizon investors because it can help prevent short-term behavior and support compounding.

Data Points: U.S. cropland lost to urbanization: approximately 4.8 acres per minute - Used in the opening explanation of why farmland supply is shrinking over time. Alternative estimate for U.S. farmland loss: 3 acres per minute - Mentioned later as a rough figure supporting the scarcity thesis. Leased U.S. farmland: about 40% of all U.S. land is leased out to non-relatives - Used to support the argument that farming operations and land ownership are often separate. Farmers interviewed this year: over 5,000 - Garrett says AcreTrader talks to thousands of farmers as part of sourcing and relationship-building. AcreTrader employees: close to 70 - Garrett says the company has grown rapidly and has more farms than employees. Earlier company size: 11 people a year ago - Illustrates rapid hiring and scaling at AcreTrader. Projected company size: 150 people this time next year - Garrett describes aggressive hiring and growth expectations. American farmland owner age: about 65 years old - A listener question prompts discussion of aging owners and expected turnover. New tractor cost: $400,000 to $500,000 - Used to show the capital intensity of modern farming. Harvester cost: $600,000 to $1 million - Further illustrates capital requirements for farm operators. Goat farmer rejection story: 95% to 99% of deals kicked out - Garrett says AcreTrader rejects the vast majority of potential deals during diligence. Farmland drawdown in the Great Depression: over 80% - Used as the historical extreme downside scenario for farmland. T-bill real drawdown: 50% - Meb argues that after inflation, even ‘safe’ cash-like assets can suffer large real losses. U.S. farmland allocational mix: 85% corn, soy, and wheat - Garrett cites this as the dominant row-crop acreage mix in the U.S. Row crop vs. permanent crop frontier: 70/30 - They discuss a possible portfolio split that balances stability and upside.

Pivotal Quotes: "The actual operating business does not always own the land underneath." — Garrett McClintock: Explaining the core distinction between the farm as a business and the land as an asset. "We want to make buying and selling land common, transparent, and easy." — Garrett McClintock: Describing AcreTrader’s broader mission beyond securitizing farmland. "I see illiquidity in a world of Robinhood, Wall Street bets as a feature, not a bug." — Meb Faber: Arguing that long lockups can help investors think and behave long term.

Implications: Farmland may become more mainstream as an accessible, data-driven real asset, especially if platforms keep aligning farmer and investor incentives. Expect growth in niche crop exposure, ancillary revenue streams, and geography-aware underwriting.