Why Farmland With Centuries of Water Is the Ultimate Scarce Asset | John Farris of LandFund Partners on Super El Niño, Food Security, and the Sources of Alpha in Farmland

Episode Summary

Executive Summary: The episode argues farmland—especially irrigated row-crop land over the Mississippi Alluvial Aquifer—is an underappreciated real asset as protein demand rises, arable land shrinks, and climate shocks like a potential super El Niño tighten global food stocks. John Ferris explains Land Fund Partners’ thesis: water-rich Mid-South farmland offers durability, optionality, and income growth through active management, regenerative farming, subsidies, and emerging water-rights value.

Main Topics: Global food security and rising protein demand (Priority: 5/5): Ferris frames food security as a macro-critical issue: more people are moving up the protein consumption ladder, especially in Asia, while land and water constraints make supply harder to expand. Climate risk, El Niño, and thin grain stocks (Priority: 5/5): The conversation emphasizes that global food inventories are tight and a super El Niño could disrupt rice and grain production in major exporting regions, creating near-term price and supply shocks. Why irrigated Mid-South farmland is attractive (Priority: 5/5): Ferris explains that farmland above the Mississippi Alluvial Aquifer offers abundant, replenishing water, high irrigation rates, crop flexibility, and resilience versus rain-dependent regions like parts of the Midwest and California. Land Fund Partners’ acquisition and management model (Priority: 4/5): The fund buys family-owned farms, improves them with irrigation and infrastructure, leases to large operators, and actively manages the land to create value and stabilize cash flows. Regenerative agriculture as an economic edge (Priority: 4/5): Cover cropping and soil-building practices cost money initially, but Ferris says they improve soil, lower input costs, lift yields, and increase net income over time, enhancing farm value. Water rights, data centers, and optionality (Priority: 4/5): Ferris argues water under land will increasingly be monetized, especially as data centers and other users seek offsets, making water rights a future source of asset appreciation. Farmland as a portfolio diversifier (Priority: 4/5): The episode positions farmland as negatively correlated with stocks and bonds, offering investors stability, inflation resilience, and downside protection during market drawdowns.

Key Arguments: Protein consumption rises when populations move into the middle class, and they rarely reverse that shift without severe social disruption, supporting durable food demand. Arable land is shrinking while global population and protein production per capita are rising, creating a structural supply-demand imbalance. World food stocks have fallen from roughly 110 days to around 70 days, making the system more vulnerable to weather shocks and trade disruptions. Irrigated farmland with reliable water is becoming more valuable because it reduces weather dependence and allows crop diversification. The Mississippi Alluvial Aquifer provides unusually long-duration water access, with farms in the fund averaging about 300 years of water at current draw rates. California’s water constraints have already reduced rice acreage sharply, showing how water scarcity can reprice agricultural regions. Technology has helped yields, but it cannot fully offset land, soil, and water constraints; some indoor farming models failed economically. Regenerative practices require upfront spending, but after a few years they can reduce fertilizer, water, diesel, and tillage costs while improving yields and rents. Government crop insurance and support programs stabilize farm revenues and commodity prices, making farmland cash flows more resilient. Farmland offers true diversification because returns are not highly correlated with stocks, bonds, or other real estate segments. Water rights and related monetization could become more important in the next decade, especially as regulators and users begin to price overuse. Scale matters: large farms and professional operators can absorb equipment costs, rotate crops based on prices, and generate better economics than small, fragmented operations.

Data Points: Global population: 6 billion to 8 billion - Ferris says the world grew from about 6 billion people in the late 1990s to 8 billion today. Protein consumption shift: 1 meal/day with protein to 2 meals/day with protein - He describes middle-class upgrading in East Asia as moving up the protein scale. Food stock coverage: ~70 days - Current global food stocks if no new crop is grown. Food stock coverage a decade ago: ~110 days - Ferris cites a decline in reserve coverage over 10 years. California rice acreage in past decades: ~500,000 acres annually - Historical California rice output before water scarcity and development pressures. California rice acreage this decade: ~200,000 to 300,000 acres - Reduced rice plantings due to water issues and alternative land uses. Farmland price premium in Midwest vs Mid-South in 2013: ~140% higher - Midwest row-crop farmland traded at a much larger premium when Land Fund Partners started. Farmland price premium in Midwest vs Mid-South today: ~80% to 100% higher - The gap has narrowed materially since 2013. High-quality Mid-South farmland price: $7,000 to $9,000 per acre - Ferris’s estimate for top-tier irrigated land in their region. High-quality Midwest farmland price: $14,000 to $17,000 per acre - Ferris’s estimate for comparable Midwest acreage. Fund irrigated acreage: 93% irrigated - Portion of Land Fund Partners’ farmland with irrigation. Water depth / aquifer position: 200 to 250 feet of water below; 20 to 30 feet below ground in practice - Describes the Mississippi Alluvial Aquifer’s accessibility and abundance. Estimated water longevity: ~300 years - Average farm water availability at current draw rates. Fund scale: 40,000+ acres / close to 50,000 acres - Land Fund Partners’ farmland under management through vehicles and relationships. Fund age: 13th year - Ferris says the firm is entering its 13th year. Fund number: 7th fund - Current iteration of Land Fund Partners. Acquisition pace: $50 million per year - Approximate annual expansion of the asset base. Land addressable market: $100 billion - Ferris estimates high-quality farmland opportunity on the aquifer. Water rights values out West: Outperformed the S&P 500 over 30 years - Ferris notes western water rights have compounded at high single-digit-plus rates. Carbon/soil economics: 30% to 40% more net income - Ferris claims regenerative farming can increase farm net income after initial transition years. Cover crop cost: $50 to $100 per acre - Upfront cost to implement regenerative cover cropping. Irrigation system value-add: $1,000 per acre cost; $2,000 to $3,000 per acre value uplift - Estimated economics of installing irrigation infrastructure. Typical farmer age: North of 60 years old - Used to illustrate succession and consolidation pressures in farming. Average farmer scale working with fund: ~8,000 acres - Average size of independent operators leasing fund land. Largest operators mentioned: 80,000+ acres - Some farmers farm across very large regional footprints. Rent growth: 5% to 10% annually - Ferris says rents have increased annually on the land. Leverage target: 30% to 35% - Typical fund leverage level. Maximum lender leverage: up to 55% - Government-backed lending capacity via Farm Credit/Farmer Mac. Financing rate: Just north of 4% all-in - Approximate cost of fund debt. Minimum investment: $100,000 - Fund minimum for investors. Average check size: $3 million to $5 million - Typical investor ticket size mentioned. Solar lease/purchase price: ~$25,000 per acre - Offer for land with transmission-line exposure, compared with farmland value. Typical farmland value used for comparison: ~$8,000 per acre - Used as benchmark for the solar option comparison. Transmission-line acreage: ~17,000 acres - Portion of portfolio with lines running through it. Solar option acreage: ~8,000 to 9,000 acres - Portfolio acreage under solar option or lease discussions. Crop support coverage uplift: 15% to 30% average increase - Ferris says the One Big Beautiful Bill raised support levels for key crops.

Pivotal Quotes: "the world's arable land base is shrinking at the same time that the world's appetite for food, and specifically protein, is going up." — Jack / host framing the episode: Core thesis for why farmland is an underappreciated real asset "we've seen more climate impact, less land. And it's relevant today because we're about ready to embark on the Super El Niño." — John Ferris: Explains why the current cycle matters now, not just in the long run "We believe water rights will come our way. To our area of the country because of the proliferation of data centers and other users that need to account for." — John Ferris: Future monetization thesis for water beneath Mid-South farmland

Implications: Listeners should see irrigated farmland as a scarce, income-producing real asset tied to food security, climate resilience, and future water scarcity. For investors, the appeal is long-duration, diversified returns with upside from land appreciation, regenerative farming, and emerging water-rights pricing.