INVESTING IN FARMLAND - Maybe it's time to "Be Like Bill" - AGInvest Canada
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INVESTING IN FARMLAND
FEBRUARY 2021
Maybe it’s time to “Be Like Bill”
Maybe it’s time to “Be Like Bill”
A recent Forbes article reported that Bill Gates, billionaire investor and co-founder of Microsoft, has
A recent Forbes article reported that B ill Gates, billionaire investor and co-founder of
become the largest private farmland owner in America. What makes this news even more surprising is
Microsoft, has become the largest private farmland owner in America.
that there have been record inflows into technology funds over the past year. So, while investors have
What makes
been this news
scrambling even in
to invest more surprising
technology, is that
driving there
prices have
and been record
valuations higher,inflows intowealthiest
one of the technologymen
funds overworld,
in the the past
and year.
a guy So,
whowhile
knows investors have been
a little something scrambling
about to invest
technology, in technology,
was busy driving
accumulating
prices and valuations
thousands of acres higher, one of the wealthiest
of farmland…weird, right? men in the world, and a guy who knows a little
something about technology, was busy accumulating thousands of acres of farmland...weird, right?
But it might be worth considering the environment we are in and what likely drove Bill Gates’ decision.
But Ever
it might
sincebethe
worth considering
financial the environment
crisis, central we are
banks have been in and
printing whattolikely
money buy drove
assets Bill Gates’
to push thedecision.
price of
Everthose
sinceassets
the financial
higher. crisis, central banks have been printing money to buy assets to push the price
of those assets higher.
I’ll try not to go too far down this rabbit hole, but if you think about money, it is meant to be a “store of
value” that represents the value of work you have done. We use that money to buy the things we
need/want.
INVESTING The difference
IN FARMLAND -Maybe it’sbetween the
time to “Be money
Like Bill” earned and the money we spend is our savings and
AGinvestCanada.com
PAGEeffectively
1 makes up our wealth. That seems straightforward enough, except that for the past 40 years,
some other things have been going on that are coming home to roost. The cost to borrow money has
I’ll try not to go too far down this rabbit hole, but if you think about money, it is meant to be a “store of
value” that represents the value of work you have done. We use that money to buy the things we need/
want. The difference between the money earned and the money we spend is our savings and effectively
makes up our wealth. That seems straightforward enough, except that for the past 40 years, some other
things have been going on that are coming home to roost. The cost to borrow money has continuously
declined since rates peaked in 1981, but especially when recessions hit. Each time, central banks lowered
the rate of interest which effectively bailed out the debtors. It also allowed more and more debt to be
buy those
created bonds. Again,
(effectively lower
creating rates
more with more
money) money
at lower meant
costs. asset prices went
The combination higher.
of more After
money all, theyand
available
told us
lower that was
interest themeant
rates goal. But now,
asset interest
prices wentrates areThat
higher. negative in realsmoothly
all worked terms (net
forofyears
inflation) for most
because there
developed countries, negative in nominal terms in a lot of those countries and requiring
was room to lower rates further. Then came the financial crisis and central banks were forced to push a lot more
rates
printeddown to zero,
money buy bonds to ensure rates stayed low and conjure up money to buy those bonds.
to maintain.
Again, lower rates with more money meant asset prices went higher. After all, they told us that was the
But what is the value of money conjured up out of thin air by the governments and central banks? There
goal. But now, interest rates are negative in real terms (net of inflation) for most developed countries,
is no work involved, no service provided and no production of goods. This money has no intrinsic value,
negative in nominal terms in a lot of those countries and requiring a lot more printed money to maintain.
except for the fact that we all continue to have faith in our currencies. If governments continue to
But what is
produce the value
more of money
and more conjured
currency in thisupway,
out people
of thin air by the
begin governments
to figure out thatand central
it might notbanks? There
be worth is
what
no work involved, no service provided and no production of goods. This money has no intrinsic value, except
they thought it was. After a while, smart investors realize that they better own less of the stuff
for the fact that we all continue to have faith in our currencies. If governments continue to produce more
governments make with a simple keystroke (money) and more of the scarce stuff that you can still buy
and more currency in this way, people begin to figure out that it might not be worth what they thought it
with that money (farmland?). Smart investors also understand that markets have become like a drug
was. After a while, smart investors realize that they better own less of the stuff governments make with a
addict that requires more and more money at a lower and lower cost. In real terms, the cost to borrow
simple keystroke (money) and more of the scarce stuff that you can still buy with that money (farmland?).
money is negative and central banks are conjuring up hundreds of billions more each month. How can it
Smart investors also understand that markets have become like a drug addict that requires more and more
possibly not be worth less and less???
money at a lower and lower cost. In real terms, the cost to borrow money is negative and central banks are
The chartupbelow
conjuring is oneofI billions
hundreds have referred to inmonth.
more each the past.
HowIt can
shows the S&P500
it possibly asworth
not be compared to corporate
less and less?
earnings. While you would expect there to be variations from time to time, the earnings growth should
The chart below is one I have referred to in the past. It shows the S&P500 as compared to corporate
be what drives
earnings. the index
While you wouldhigher.
expectInstead,
there tothe S&P500 has
be variations been
from climbing
time without
to time, any fundamental
the earnings growth should be
support from higher earnings. In fact, earnings have remained flat since 2012 while
what drives the index higher. Instead, the S&P500 has been climbing without any fundamental support the S&P500 has
continued to rise. As the rate of money growth increased, the spread between the
from higher earnings. In fact, earnings have remained flat since 2012 while the S&P500 has continued two has widened. All
tothat
rise.extra money
As the rate had to go somewhere,
of money growth increased, so it forced pricesbetween
the spread higher, even though
the two hasthere wereAll
widened. nothat extra
incremental
money had toearnings to support
go somewhere, Is realprices
so itit.forced wealthhigher,
creation happening
even ?
though there were no incremental earnings
to support it. Is real wealth creation happening?
Truth be told, there are no examples in history where hyper-expansions of the money supply have led to
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good outcomes. Historically, printing money at
INVESTING IN FARMLAND -Maybe it’s time to “Be Like Bill”
this rate has been the signal for smart investors to buy
PAGE 2
real assets, like Bill Gates is doing. All this money printing and negative real rates has created many
Truth be told, there are no examples in history where hyper-expansions of the money supply have led
to good outcomes. Historically, printing money at this rate has been the signal for smart investors to
buy real assets, like Bill Gates is doing. All this money printing and negative real rates has created many
pricing distortions across asset classes. Last time I checked, there was $18 trillion of negative yielding
debt in the world, we have IPOs for companies with no earnings and we are seeing extreme pricing of
speculative
speculativeassets.
assets.The chart
The below
chart belowshows
showswhatwhathas
hashappened
happenedto toan
anindex
index made
made upup of “non-profitable
of “non-profitable
U.S. companies
U.S. companies inininnovative
innovativeindustries”.
industries”.
The next chart shows more than 40 years of money supply as compared to the market capitalization of
the US stock market. As you can see, the increase in money supply was tame before the financial crisis
but has accelerated ever since and is now parabolic.
INVESTING IN FARMLAND -Maybe it’s time to “Be Like Bill” AGinvestCanada.com
PAGE 3
The next chart shows more than 40 years of money supply as compared to the market capitalization of
the US stock market. As you can see, the increase in money supply was tame before the financial crisis
but has accelerated ever since and is now parabolic.
Unfortunately, debasing money incentivizes people to speculate and not produce. It might explain why we
Unfortunately, debasing money incentivizes people to speculate and not produce. It might explain why
are seeing so many TikTok videos and YouTube ads from twenty-year-olds telling us how easy it is to make
we are seeing so many TikTok videos and YouTube ads from twenty-year-olds telling us how easy it is to
money in the stock market. These videos show very young adults talking about not having to get a 9-5
make money in the stock market. These videos show very young adults talking about not having to get a
job and suggesting the Federal Reserve will keep printing money ensuring stocks continue to go up. The
9-5 job and suggesting the Federal Reserve will keep printing money ensuring stocks continue to go up.
prospect of massive wealth gains and the fear of missing out is enticing many to join in, while social media
The prospect of massive wealth gains and the fear of missing out is enticing many to join in, while social
makes it easy for them to organize and share their stories. So, if all these young kids can make money so
media makes it easy for them to organize and share their stories. So, if all these young kids can make
effortlessly investing in these stocks, why isn’t Bill Gates investing like the c
ool kids???
money so effortlessly investing in these stocks, why isn’t Bill Gates investing like the cool kids???
Bill has instead directed his focus to amassing the single largest portfolio of farmland, a real asset
Bill has instead
producing real directed hissociety
goods that focus to amassing
needs. the single
Farmland largest portfolio
has experienced of farmland,
a dramatic rise in aproduction
real asset yields
producing
over the pastreal70goods that
years as society needs. Farmland
breakthroughs has experienced
in mechanization, a dramatic
technology rise in
and genetics production
made yields
their way
to the farm. G
iven the amount of money being invested in R&D and AGtech funds all looking
over the past 70 years as breakthroughs in mechanization, technology and genetics made their way to for more
the farm. Given
innovations, that growth
the amountin production
of money per
beingacre is poised
invested in to
R&Dcontinue.
and AGtech funds all looking for more
innovations, that growth in production per acre is poised to continue.
INVESTING IN FARMLAND -Maybe it’s time to “Be Like Bill” AGinvestCanada.com
PAGE 4
Maybe Bill figured rather than paying more and more for companies that do not actually make any
money, he figured
Maybe Bill might be better
rather off paying
than owningmore
an asset
and that
moreproduces more that
for companies and more
do noteach . It is any
yearmake
actually an asset
that will he
money, produce more
might be of the
better offproducts weasset
owning an require
thatand that will
produces not and
more be displaced
more eachbyyear
a new
.It technology.
is an asset
that will produce more of the products we require and that will not be displaced by a new technology.
As an asset class, farmland has proven to be one of the best inflationary hedges. The returns on
As an asset
Ontario class,from
farmland farmland
1970 has proven
to the end ofto 1981
be one of the
came in at a 1inflationary
best 5.6% CAGRhedges
(based .on
The returns data)
StatsCan on Ontario
while
farmland
the from
S&P 500 1970 to2.2%
returned the end
CAGR of over
1981 that
came in atperiod.
same a 15.6%In CAGR (basedthe
real terms, on StatsCan data)
S&P 500 lost halfwhile
its the
S&P 500 returned
purchasing 2.2% CAGR
power during over that same period. In real terms, the S&P 500 lost half its purchasing
that time.
power during that time.
Maybe Bill observed how resilient an asset farmland proved to be in a year like 2020, and concluded it
Maybe Bill observed how resilient an asset farmland proved to be in a year like 2020, and concluded
was an asset that will do well in all economic environments. Or maybe he realized the importance of
it was an asset that will do well in all economic environments. Or maybe he realized the importance of
ensuring we have a secure and stable food supply going forward and wanted to make certain it was held
ensuring we have a secure and stable food supply going forward and wanted to make certain it was held
in
in strong
stronghands
handsthat
thatwould
would take
take care
care of
of this
this precious
precious asset. AtAGinvest,
asset. At AGinvest,we
wethink
thinkabout
aboutthat
thatevery
everyday,
day,so
so
wewe have
have a pretty
a pretty good
good idea
idea of of what
what BillBill
may may have
have been
been thinking.
thinking.
IfIfitit is
is not yet obvious
obvious that
that higher
higherasset
asset prices
pricesfueled
fueledbybyprinted
printedmoney
moneyisisnot
notactual
actualwealth
wealthcreation,
creation, then
go back
then and look
go back and at indexes
look from from
at indexes places like Zimbabwe
places and Venezuela
like Zimbabwe when when
and Venezuela they got their
they gotprinting presses
their printing
going. If printing money in this manner and indexes going parabolic was true wealth
presses going. If printing money in this manner and indexes going parabolic was true wealth creation, creation, those
countries
those wouldwould
countries be twobeoftwo
the richest countries
of the richest in the world.
countries in theGiven theGiven
world. monetary environment
the monetary we are in,
environment
youare
we should probably
in, you shouldlook to build
probably real
look towealth andwealth
build real own some
andreal
own“productive” assets...and “be
some real “productive” like Bill”.
assets…. and
“be like Bill”.
INVESTING IN FARMLAND -Maybe it’s time to “Be Like Bill” AGinvestCanada.com
PAGE 5
Written by AGinvest Senior Vice President of Business Development, Anthony Faiella.
To reach Anythony, please email Anthony.Faiella@AGinvestCanada.com
This information does not constitute financial or other professional advice and is general in nature.
It does not take into account your specific circumstances and should not be acted on without full understanding
of your current situation and future goals and objectives by a fully qualified financial advisor.
INVESTING IN FARMLAND -Maybe it’s time to “Be Like Bill” AGinvestCanada.com
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