The Agrarian Portfolio – The Financial Re-Imagining of the Family Farm

“I needed no unusual knowledge or intelligence to conclude that the investment had no downside and potentially had substantial upside. There would be gales, yes, and birthdays would come and go. But what of it? There would be some exceptionally good years as well, and there would be a few disappointing ones. But the corn and soybean would always arrive.” – Warren Buffett

 

This quote was pulled from the 2014 annual letter written to the shareholders of Berkshire Hathaway. It was a simple analogy of Buffett’s purchase of a Nebraska farm to teach a masterclass on long-term investing. To push a mindset shift from emotional to rational. For me, it bridges the gap between financial portfolios and agriculture.

 

I didn’t grow up with an investing mindset. To be truly transparent, I still spend too much money on toys and not enough on retirement. I have saved a little in the kid’s disability funds and have multiple pensions from my numerous times in public practice. At year-end, I get the annual statements and spend a few minutes reviewing the returns, the reinvestment, and the estimated retirement future value. I don’t feel anything towards the lines on the paper; I just read it like a book and assess the returns for the year. It was in practicing this yearly activity that I made a realization: to shift the emotional to the rational, take the farm out of the “family farm”.

 

For years, I had been going about this all wrong. I was pushing businesses to take the family out of “family farm”. This was met with emotion, anger, and, honestly, a stubbornness I had never seen before. But now I had realized the legacy is the family, not the farm.

 

Remove the Daily Noise

 

I don’t check my investment statements daily; in fact, I probably look at a few of the pension amounts annually. When Buffett purchased his Nebraska farm, he didn’t get daily land quotes or check a ticker symbol to see if he was richer or poorer. He ignored the daily noise and focused on productivity.

 

As farmers, I believe one of the largest problems is that we live where we work. We measure the rain in the gauges, the wind or sun during the day, and the temperature drops in the dark. In investment terms, we spend all our time checking the share price. It was the number one reason I no longer carry Bitcoin; I couldn’t get my eyes off the screen long enough to let it grow.

 

A farm’s productivity is not measured in days, months, or even years. It is measured in lifetimes. No farmer said I hope I grow a big crop this year so I can sell the farm for top dollar. They poured their blood, sweat, and tears into decades of working the ground or growing the herd to one day have enough value to support the next generation. So why, when we look at farms, do we only look at annual profits? Why do we not review the investment portfolio between real estate (land) and investment (operating)?  The return on assets, the return on equity, and the net returns on each portfolio investment? When was the last time you charged your investment land rent for your owned real estate? 

 

The Power of Time

 

The definition of “intrinsic value” is the inherent worth of an asset, company, or concept based on its fundamental characteristics, rather than its fluctuating market price. If the asset produces something tangible that the world fundamentally needs (like food), its long-term value is secure regardless of short-term economic gales. Agriculture requires patience: the land, the production, the diversification. Wealth compounds over time; you do not plant a canola seed today and harvest it tomorrow.

 

Fundamentally, farmers are some of the richest investors in the world. On paper, the assets between land, equipment, inventory, and infrastructure are so immense that it puts them in the top 1% earners in many countries. The problem is the gap between equity and liquidity. Most farms I know today have trouble paying their monthly burn rate, while the net worths are in the tens of millions. Rain might make grain, but equity does not make cash unless you plan on selling. And for a larger majority of operations, selling is not in the strategic plan.

 

There is also a lack of patience in the next generation. Immediate satisfaction is not a strong bedfellow for patience. It took the baby boomer generation twenty years to recover from the 1980s and another twenty years to grow the asset base to what we see in family farms today. Whether land values continue to escalate, or they soften or drop, is irrelevant, as Buffett highlighted, the long-term value is secure. Too often, farms today look at short-term returns as success, when long-term profitability and growth are what got us here. 

 

It all comes back to mindset. In agriculture, only 35% of family farms make it to the second generation. This statistic on its own tells a compelling story about how family relationships and emotions are closely tied to success. The rest of the story is that only 30% of small businesses make it to the second generation. The sooner we realize that our issues in agricultural transition are a little less family and a little more farm, the better we will be. 

 

There is an anonymous quote that says, “Farmland is like gold, but with a yield”. Land is a financial instrument, land is scarce, and land is a tangible asset that acts as a haven against inflation. But unlike gold, land generates annual cash returns. If you step back and take a re-imagining of the family farm, you might see it. The return on investment is not the farm, it is the family and wealth that it maintains through the generations.