Hello, and welcome to What Goes Up, a weekly markets podcast. My name is Mike Reagan. I'm a senior editor at Bloomberg.
And I'm Bildona Hire, a cross asset reporter with Bloomberg, and.
This week on the show, Veldana. I don't know if I've ever told you about this, but sometimes I literally have daydreams that I own a farm and I'm like off in retirement as a farmer.
I think everybody has those dreams. No, I don't know, did I, especially if you live in the city. You want a sort of more nature.
Filled life, more nature filled life, I guess.
That makes it, yes, Or you want a garden or something like.
Don't get me wrong, I don't want a giant, five hundred acre farm that I actually have to work at. I want a cup a few acres.
You don't want to have to do any work.
I'll plant some raspberries, maybe get some sheep.
I think sheep would require a lot of work.
Do you think? I think you just spring amongst let them meet through grass, and shave them down once a year. More to it than that? What else do you need to do?
Feed them? I don't know them.
That's what the grass is for. But anyway, look, it's a good week to daydream about being a farmer, because let's be honest, if today's Wednesday, May twenty fourth, if we tried to cover the market right now, with the debt ceiling issue going on and that being so fast moving and such a unpredictable thing, I feel like by the time we got done, everything would have changed and the news would be so different. So I think for
this week, let's all daydream about owning a farm. If I let you on to my farm, I know you refuse to join my professional network on LinkedIn for I don't know, But if I were to allow you onto my imaginary farm network, would what would you grow on my farm?
Tomatoes?
Just tomatoes.
We can use them to feed your sheep.
I don't think sheep eat tomatoes. I think they just eat the grass.
I really don't know.
Cauliflower. You wouldn't grow cauliflower. You're a city slicker. Yeah, I don't know. If I don't know, if I'm gonna let you on my farm, on my imaginary.
Farm, fine, I won't let you on my imaginary firm. Fine, But our guests might have a farm. I want to bring him in. It's Carter molloy, CEO and founder of acre Trader. Carter, I'm so happy to have you on the podcast and talk about your company.
Thanks for having me here.
First of all, are you on a farm?
Not today, though many days I am. I also, while I would love to invite you guys to my farm, I'm also not really sure I want to join.
The There you go, I'm not the only one.
Fine, fine, I'm alone on my farm with my raspberry and sheep tomato eating sheep. But Carter, tell us about acre Trader. Really a fascinating platform you've started here that actually lets people and I suppose institutions invest in fractional ownerships of farms. Tell us a little bit how it started, how it works, and what's going on with acre Trader.
For the quick background of the business, We've been here for five or six years working on this simple mission of connecting farmers that want to grow their business to investors that want exposure to farm land in their portfolio. I grew up in a farming family here in Arkansas. I's spit a dozen years in professional equity investing, but in the background, I've been buying and selling farmland it's a big passion of mine. Come to find out, there are a lot of other people that also want exposure.
The reality is you may have to go put down a million dollars and then manage a business, and that's a non starter for most people. So we design an acre Trader very simply to be a place where an investor can come online, create an account, and within a few minutes and a few clicks actually invest directly in entities that own farmland. So each week we put up a
farmer too that's owned by a unique entity. You, the investor can come on and invest ten twenty thousand dollars or millions of dollars and have exposure and build a portfolio of farmland through our website and through our technology.
Okay, so tell us more about how it works and like who the investor base is. So, is it accredited investors who are really interested in diversifying their portfolios or what does the makeup of the client base look like.
That's correct, It is a credited investors on the platform now that ranges from folks in cities to farmers and rural areas and folks that live near farming to institutions as well. Family offices, et cetera. The goal for most folks is to find some stability and some diversification. That's often why we see folks with real interest in farmland is that slow, in steady compounding that it can offer to investors.
So if I'm a farmer, I own a farm, I sell it to one of these entities, I guess they serve sort of as the manager of this investment. They collect the rent and distributed among the investors. Is that basically it.
Most often the farmer comes to us, actually, and it's usually a farmer that wants to grow. If you think about this from the farmer's standpoint, many farmers are in growth mode. They have lots of fixed costs, right, very expensive equipment, more inputs, seed and fertilizer as an example, that they buy the better discounts they get with that type of economy of scale and that business. Many farmers
are actively in growth mode. So they'll come to us and say, hey, my neighbors retiring or for whatever reason, the farm's being sold. There's upwards of one hundred billion dollars of farmland that is bought and sold every year in the US. So these farmers that are our partners are out actively helping source and find farm lay where they want to grow their business. And then you're exactly right.
We set that up where they often will have a financial interest in that entity, and then they will either share their revenue or pay a simple rent to that entity, which then can be a cash distribution out to those investors. So the investors from their angle, they can make money from those cash rents coming in as well as through appreciation of land over time.
And then tell us more about your background and the inputus for starting the company.
My dad's a farmer. I've been around it my whole life. It's just in my line. I think it's in all of our life, right. You guys say you have this dream of living in agrarian life, it's because we all did at some point in generations. Back I spent my life grinding out alpha in public markets and working really long days on Bloomberg terminal looking for alpha, and in the background buying and selling land. And realize that here's this multi trillion dollar asset that's been incredibly productive and
stable over time. There was no real mechanism for most folks to get exposure to it, and so that was really the genesis the business was frankly visiting with my dad and telling him that this is in like twenty seventeen, I thought bitcoin was a terrible investment idea. Really that sparked this conversation of can we fractionalize farmland? Is there a way where common investors can gain exposure to farmland their portfolio.
What's fascinating is the returns are pretty attractive. There is actually a farmland index that tracks the notional value of farm land. I guess around the country, but talk to us a little bit about sort of that return profile. My understanding, it's got a pretty good track record. It's not really correlated with risk assets or even treasuries. It is correlated with inflation to some degree. Talk to us about kind of what you can expect from that return
profile and the volatility and whatnot. As an investor in farmland.
First is important to consider what farmland is not. Farmland is not a good risk quick scheme. You rarely hear people saying, oh my gosh, I doubled my money on my farmland investment this year. Inversely, you also don't hear people saying, oh my gosh, I've lost all my money on farmland this year. What investors often I'm looking for is that's slow, in steady compounding of capital. And you're right, those returns nay Grief is the index that puts out
those returns for farmland and timberland. Over the last twenty or thirty years, it's been a fairly consistent low double digit return eleven or twelve percent nothing, oh my goodness. But when you compare it to other mainstream asset classes, that return profile is pretty similar over long periods of time. What's more fascinating is the consistency of those returns. You don't have big, huge up years and huge down here that you do across so many other mainstream asset classes.
So again, the consistency of the returns and that relative lack of volatility an investor's speak, means that the sharp ratio of farmland can be very very attractive the risk adjusted returns there. And then in addition to that, you've also called out a couple of key themes. What is
it can be inflation linked. It's actually shown to be more inflation linked than gold, in that in times of high inflation or persistent inflation, it tends to outperform and also that it just doesn't have a lot of correlation to other asset classes, like it's almost exactly zero in its correlation to the S and P. So from a diversification standpoint as well, we see folks adding farmland in their portfolio to have that sort of set in and forget it part of their portfolio where they're looking for
company a capital or wealth preservation.
I was curious about the correlation aspect as well, because I was wondering what PUSH's price is higher or lower, and whether or not, you know, maybe you can tie to the housing market in some way, or what market it would be similar to, or where those some of those correlations might lie.
So as a general sense, we don't really see correlations to things like housing market or primary asset classes. Where we do see some correlation again over longer periods of time, is commodities, Right, so you think about we grow food, fuel, and fiber on farmland, that tends to be those tend to be a core component of commodity CPI PPI type of indicators, and so as a result, we do tend to be linked to that inflation and price over time.
And as you can imagine in the world of supply and demand for farmland commodities.
It's fairly straightforward.
We have more and more mouths to feed every year and to provide clothing and fuel to, and frankly like less and less actual physical farmland. We lose like staggering amounts of farm land every minute and every day here in the US to development, to growth onto other now larger solar developments, things like that. So finite supply, it's physical, and it's limited and is shrinking and growing demand over time with the products that we produce.
So I'm curious about sort of the risk management or potential downside of this type of investment. Say, you know, I buy a fractional ownership in a farm in a state where there's a bad drought or I don't know, a bull weavile outbreak or something that really impacts the production of whatever they're growing on that farm that year so much so that the farmer can't pay his rent and maybe even you know, his defaults on his tracker lease or equipment or whatever, and it's kind of has
a net loss for that year. How does that play out in an investment like this?
So we tend to think of the world generally speaking, as OpCo and propco. Right, your operating company is the farming business. Your property company is owning the underlying land, and so we tend to look more to be the property company in that scenario. Whereas the farmer is the operating company. They often have insurance to help backstop them.
Often government subsidize insurance at that so as a tenant and as a partner, farmers tend to be very stable over time, and as a result we see we do see very low default into our vacancy rates throughout the ecosystem. As an example of that, in the world of row crops, so thinking about growing important commodities like corn, soybeans, farmer often pays rent once a year before they plant. It's
an incredibly stable across the larger world of farmland. For that reason, there are certainly risks in there, and one of the greatest ones is just underwriting risk, making sure that you are actually in fact buying farmland well. And it's really hard to do because there's such a lack of information in our world. So we've invested heavily. We've got a large data science and engineering crew here as an example, helping to build underlying geospatial analytics and data
for us just to help inform these underwriting decisions. And we've got a great team well outbuilding partnerships with farmers. What actually makes it through that that very very tight filter that team employees.
I do want to ask you more about that, because when I was talking to some of your employees before the podcast, when I met them a couple of weeks ago, I think somebody said, it's like, you can almost think of it as like the Bloomberg terminal, but for farmland statistics and for farmland data. First, I want to ask you how is farmland performing of late? And I'm also curious how it fared like what prices did during the pandemic, for instance, and what it's been like over the last couple of years.
So, as a general statement, on the appreciation side, of the years before the pandemic, the five or six years before then, we saw relatively muted appreciation. We have seen some catch up in that long term call it mean reversion in terms of appreciation the last few years so we've seen more meaningful, call it double digit versus your typical single digit type of growth in the underlying asset.
The rents themselves are the income coming off the farm generally speaking, has also grown over that same time period.
I'm curious if there's any sort of shareholder democracy type of components of this. You know, if I end up owning, say fifty one percent of a farm, or you know, I own thirty percent and of like mind with someone that owns another thirty percent and we have that majority stake, is there sort of an option to say, oh, you know, I think we need to start growing corn instead of soybeans, or I think it's time to sell. Is there any sort of equity democracy at action as far as ownership?
You know, where is it all the the property companies and the operating companies that control that? It tends to be the latter.
So we have an investment committee that works on behalf of the investors to consider what the best outcomes are for those investors on an entity by entity basis. And the reason for that is is we and then aside from that, we also have common standardized corporate wraps and government wraps around these entities for obvious reasons, to be
pretty standardized across our business. And what we want to avoid is a fifty one percent layer coming in and bullying, right, and actually making decisions that are averse to the best outcome for the rest of that majority or best that minority investor pool. So as a whole, that tends to be more of the investment committee. Now, look, we speak
to investors. We've got to investor relations team here. We hear their input every day and we certainly take that that means a lot to each of these individual investments. But again we have to consider the greater hole of investment fooled capital there rather than one individual's desires.
And so carter to go back to the data mining question, like how do you guys go about gathering your data what actually makes good farmland when you are evaluating it? And then where in the US or even internationally are you guys operating.
So in the US we're in I think eighteen or nineteen states plus Australia, so we're well o our forty thousand acres invested through platform. In terms of what considerations go into underwriting, you've got to consider soil profile, so the health of that soil water availability is absolutely crucial, and or places like the Midwest, actually getting water off of the farm is just as important as it is
finding water. So water is a really intense consideration the climate in that area, what is it good to grow? And then the financial profile, right, so you're underwriting the farmer themselves and that's an entire separate process. And then the actual bones of that farm, the structure of it. And this is where the data analytics really comes in
and is helpful. That can be government data sets that we're processing and bringing in, satellite data sets as well that we're bringing to our tools, and then importantly things like comparable sales. I know this sounds ridiculous, but if you're buying a home, you've got a pretty good sense of value on price per square foot in that neighborhood in farmland. Not only do we not have that data, but the idiosyncrasies and quality from one partial to the
next can be pretty dramatic. So as a result for gathering data they as an example, we're in with data from thousands of courthouses around the US. We also have a team of people who are literally going and attending auctions virtually or going online and finding information and manually
and putting into that system. But that's the reality of this older industry you work in, is there is a real manual data gathering and filtering and analysis process that goes into helping us understand and inform each investment decision.
I was clicking around on the website and for a day dream farmer like myself, it's the pictures that are just awesome. You know. You get these big aerial views of the farms, and there's videos sometimes, and I think you've now got me daydreaming about owning a vineyard instead of a farm Ville dona. I think I might want a vineyard.
There's a it sounds like you're ready to move.
California vineyard I've got my eye on after clicking around acre Trator. But these daydreams are all adjacent to my daydream of winning the lottery, by the way, that that's race this is all going to do.
We even play the lottery.
When it's over a billion in pay out, A group of friends of mine springs in action and we all buy a share.
I don't eyone want to know what the most is that you've ever won, like twelve twelve cents.
Isn't this a podcast about logical and reasonable investing?
Yes, it's supposed to be, Yes, yes, fair enough, fair enough, But Carter, I'm curious what you know sort of the regulatory regime is for you.
You know, are you are you registered investment advisor? Like, how does this company exist in the eyes of the regulators and what process do you have to go to both federally and state by state to launch a product like this.
We've actually gone quite a bit further and stood up our own broker dealer, so acri Trader has a wholly owned broker dealer in order to make sure that we're always compliant with the letter and this period of the law. And it extends beyond securities regulation as well. Right there are farming regulations you must take into account, ownership regulations,
a real estate regulation state by state. Suffice to say, we have an incredible general counsel and team of attorneys that work with her to help us navigate and make sure that we're continuously presenting ourselves and the investment offerings and the appropriate way and.
Gard I'm also curious about how liquid the market is. I would imagine it's pretty ill liquid, but maybe you can tell us more.
That's correct, So the market as a whole, the percent turnover within farmland is lower than comparative assets. There's still fifty upwards of one hundred billion dollars of this stuff that trades hands every year in the United States alone, So there's still quite a bit of There's a ton of reasons why folks would buy or sell farmland, right, So there is a decent amount of turnover out there.
We obviously as a company want to help improve that liquidity within the market and then within our specific business. We've been working on a secondary marketplace for a long time where we would hope to allow investors to and exchange in individual units or shares of those bums.
Yeah, I was going to say, I imagine a platform like yours would bring a lot more liquidity potentially in theory to this market. But as of now, so if I put a click around the website, it looks like fifteen thousand is tends to be the minimum investment. Is that about right?
Give or take? That's usually right?
Yeah, So, and I'm locked in for at least a year, I think, Right, what's the liquidity event for me? If I do want to get out of that investment? How does that work?
So the vehicles usually have a five to ten year life on them, sometimes it can be longer, and this is explicitly stated on the website. Sometimes it can be shorter than that. So there's the duration of the vehicle itself that the investor must take into account and the illiquidity that comes along with that, and we are looking for again this is sort of like your patient investing capital.
So setting over on the side a little bit, so there is a real liquidity consideration in investing in farmland, not just your platform, in the asset in general. And then again I think you nail the specific point. There's a one year minimum regulatory lock up on these types of securities, at which point you can have the ability to sell out to friends or family and we hope soon through a secondary market place within our business as well.
And then can you tell us about any ESG aspects when it comes to investing in farmland? Is that maybe one of the considerations or one of the things clients do tell you when they are looking to invest. Is that a consideration they do, and it's an important one.
We don't lead with ESG.
Often that can be like meeting somebody for the first time and they say, hey, you can trust me. We believe as like stewards of this world we live in, and as human beings and it's the right thing to do, so the impact for farmers and growing their business is certainly important. We enroll each farm in a sustainability standard called Leading Harvest, so that we're not just using words
like regenerative or throwing around buzzwords. This is like a merit based, checklist based sustainability standard on a per farm basis that we enroll. We actually just passed all of our farms through that here recently. We're very proud of that milestone. And then beyond that, we do tend to invest pretty intensely in things like CAPEX projects, water projects to make sure we're utilizing water appropriately and not overusing it.
We do a good number of organic transitions in some cases with farmers as well, so all of those are heavily considered in the investment process and an important part of what we do. We have an impact page on our website where investors can go find that information as well.
Carter. Obviously, in investing, the magic word that always comes up is diversification, and I wonder, obviously, if you're allocating some percentage to farmland, you're diversifying away from a lot of traditional assets. But I wonder in the future, is there do you think there'll be a potential to sort of diversify within farmland. For example, say I do want to invest fifteen thousand in farmland, but I want it split up one thousand over fifteen farms, kind of a
mutual fund of farmland. Is there a lane for that to happen? Do you think in the future.
We've evaluated a number of pool vehicle type of products, and I think there is a likely future where that exists. And the other consideration then too is we do see lots of folks come build that portfolio within our platform. So most of our investors invest in multiple farms. And you can think about our world broken into three primary buckets. That is row crops, so things that you plant each year, corn, cotton, soybeans, rice where I come from. Then there are permanent crops
things to grow on. Trees tend to be longer duration of assets. And then Timberland is a third component of this land investing category and it's its own unique beast. But we do see folks quite often building a diverse flied portfolio within our website across those land use types.
Carter, we can't let you go just yet. We have an attriition here on what goes up where every week we talk about the craziest things we saw in markets this week, or we're flexible this month, this year, whatever you got do. What do you have for us this week?
Okay? Mine is so good? Actually so Taylor Swift has been on tour, as the entire world knows. I think it's supposed to be like the highest grossing tour in the history of the world. And she played in Gillette Stadium a couple of days ago and it was pouring rain.
And now there's at least one fan I couldn't actually tell if it's more than one person who was at that show, bottled a bunch of the rain water, put it in containers and is selling it on Facebook marketplace for two point fifty per container.
Oh my gosh.
Well, apparently there were a bunch of comments. I want to say they're from swifties who are probably serious about this, who commented like, is it rainwater from inside the stadium or is it from the parking lot? Because it makes a difference.
Well, that's a big thing. My daughter and her friends actually went just to hang out in the parking lot in Philadelphia and there were like thirty thousand people there just listening from the outside that this is such a phenomenon like nothing. All right, next time I'm sending her with gallon jobs.
You just have to label it like the and just like Taylor, you know, whatever happened like and.
There's no room for fraud in that market whatsoever.
I'm sure you can tell when you look at the rainwater that it was from there.
How about you, Carter, you see anything crazy recently?
You know?
The conversation around proposals are banning short selling seems pretty wild me, like a really bad idea. We learned that once around two thousand and eight, and yet here we are. Here we are again, and every person just about involved in that decision at that moment came back and said, whoa, that was a bad idea. It didn't help. And here we are again talking about it. So that one's bothering me a little bit. And the other is the obvious
conversation around the dead ceiling. And let's put aside, like the dead ceiling conversation itself, the reality of like black Swan events, right, and we get used to the escalator on the way up, and we forget there's an elevator on the way down in markets and the world of black Swan events, it feels like as maybe as I get older, they tend to pop their heads up more and more and again like a reason why we like
stability and what we do. But in all seriousness, you know, it feels as though many investors don't hedge against that appropriately right what we see open calls pretty wide on the VIX right now, and so plenty of like doom hedging going on, But it still feels like markets don't appropriately appreciate, nor do individual investors hedge those types of risks in their portfolio.
Good points all around, and you know, it reminds me of I think probably the most appealing or one of the most appealing aspects of farmland is that scarcity notion and that they're not making any more farmland. When's the last time you heard, you know, this neighborhood was torn down and a farm was put in its place. So the opposite of crypto there with the never ending supply scarce and getting scarcer by the day. So all right,
great stuff all around. I'll give you mine, I confessed minds not exactly markets related, but it is financial related. And it speaks to duration risk to some degree. I'm stretching that a little bit, but I'll give it to you anyway. This is courtesy of USA Today. I'll just read you the lead because it's speaks for itself. An overdue book has been returned to a Northern California library after nearly one hundred years. It was the name of the book was A History of the United States by
Benson Lossing, was published in eighteen ninety two. So missing a few things in a History of the United States published in eighteen ninety two. Somehow some guy found this in his house, realized it was a library book, returned it to the library. Sure enough, they're very happy to have it back ninety six years late. So you're probably wondering what's the financial angle of this. Well, now that's
time to play the prices precise. What do you think the estimated overdue fee is for a library book that was ninety six years late? Start with you Wildana, get out your Texas instrument calculator and start doing some meth.
This is really hard, and also I can't believe that this library is still around and open that they're able to accept.
This book back. That's pretty amazing.
Okay, I'm going to go with three thousand, seven hundred fifty dollars.
Three thousand, seven hundred and fifty dollars, Carter, standard prices right rules. In effect, what do you guess the overdue bill is?
You know, even though we're playing prices right rules, I'll lean in a little harder. I'll go ten thousand, ten.
Thousand, seventeen hundred bucks, which to me is the crazy part that it It is only seventeen hundred bucks after ninety six years O me. Yeah, I think, well you're both over, but I guess your closest. We'll we'll give it to you. Okay, I win, all right, all right, fine, the rare W for Vildana. The price is precise, but the library, you know, it doesn't see obviously they're not going to charge this guy because he didn't check it out. Presumably.
I don't think he's one hundred and thirty years old. Carter. Great to catch up with you and hear all about incritrator. Really fascinating acid class, I think. And I'm gonna go back on there now and daydream about. There's a pistachio form too that clut my eye what's your at any farms come up that you've just been like, Wow, this is this is the one. If I had eight million, I'd buy this one.
You know, I have pretty regularly invested on our platform, so I'm a I'm a big fan of what our team does and the quality of farm offerings.
There very diplomatic answer there, I know.
I was like, that's not even an answer. No one's listening. You can tell us.
Corener, thanks so much for your time. We really appreciate it.
Michael Donald, thank you both.
It's been a pleasure.
What Goes Up. We'll be back next week. Until then, you can find us on the Bloomberg Terminal website and app, or wherever you get your podcasts. We'd love it if you took the time to rate and review the show so more listeners can find us. You can find us on Twitter, follow me at Bildona Hirich, Mike is at Reaganonymous. You can also follow Bloomer Podcasts at podcasts. What Goes Up is produced by Stacey Wong, and our head of
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