The Ultimate Hard Asset: American Farmland and The 300-Year Water Supply Hidden Underneath It

Summary

• Farmland investing offers portfolio diversification with low to negative correlation to equities (S&P 500, NASDAQ) and near-zero correlation to 10-year Treasuries, based on 30-year data.
• Landfund's Evergreen fund has generated mid-teen net returns since inception in October 2021, outperforming the S&P 500.
• The Midsouth region (Arkansas, Mississippi, Louisiana) is favored due to access to the Mississippi Alluvial Aquifer, estimated to have over 300 years of groundwater supply.
• Significant valuation disparity: Midsouth irrigated farmland priced at $7,000-$8,000 per acre vs. Midwest at $15,000-$20,000 per acre, despite comparable corn yields (180-205 vs. 220-240 bushels/acre).
• Water rights are not currently priced into land values but may become valuable due to data center demand for cooling and potential water scarcity trends.
• Solar leases provide substantial optionality, with year-one rents of ~$1,400/acre vs. ~$250/acre for crops, and option payments of $50-$100/acre.
• Macro drivers include rising global protein consumption (linked to GDP growth), onshoring of supply chains, and food as a national security issue.
• Technology adoption (AI, GPS, robotics) can improve farm profitability and land values without relying solely on commodity prices.
• Government subsidies (price loss coverage, crop insurance) cap farmer downside, reducing investment risk; subsidies do not flow to landowners like Landfund.
• Competition from large institutional buyers (e.g., Bill Gates, Stan Kroenke, Mormon Church) exists, but Landfund focuses on smaller farms ($4-$5M average deal size).
• Key uncertainty: How water rights will be legislated and valued in the future, with Australia cited as a model for water pricing systems.