Episodes

Dan Ferris: Hello and welcome to the Stansberry Investor Hour. I'm Dan Ferris. I'm the editor of Extreme Value and The Ferris Report, both published by Stansberry Research.

Corey McLaughlin: And I'm Corey McLaughlin, editor of the Stansberry Digest. Today, Dan interviews Artem Milinchuk, founder and head of strategy at FarmTogether.

Dan Ferris: And of course, Corey and I have to talk about the CPI report and maybe even PPI.

Corey McLaughlin: And remember, if you want to tell us what's on your mind or ask us a question, e-mail us at [email protected].

Dan Ferris: That and more right now on the Stansberry Investor Hour.

Inflation is real, man. I don't care what they say. I don't care what the headlines say, I don't care what anybody says. I guy tweeted, I saw, on – well it's called X now, but most of us still call it Twitter – and he said we're only paying 3.2% more for everything. [Laughs]

Corey McLaughlin: Yeah. It's not exactly – you know, you go by the CPI number, right? Yeah. Every time I mention that the CPI or PPI, we could get to as well, these numbers in the Digest, I find myself needing to put a qualifier in, saying this is not exactly what inflation probably is for every single person in America. [Laughs] It's the numbers that the market and a lot of people in the market latch onto.

It doesn't mean eggs down the street are only up 3% from last year. It means this number is 3% higher than last year. That's all it is. But yes.

Dan Ferris: Right. And while we're on the subject of eggs – food – that came in last 12 months 4.9%. That's not fun. And, you know, all items less food and energy, 4.7%, right? That's structural, man. That's serious. That's near 5%.

It's way more than the 2% target that the Fed has. I don't know. I feel like all this data speaks for itself and says, yeah, inflation is still a real thing.

Corey McLaughlin: Yeah. I mean, the CPI, which came in a little under the Wall Street expectations, you know, like a decimal point, the month-over-month inflation growth, which I like to pay attention to more just because of the base effects of the annual get out of whack very quickly, that one was actually a 0.2% for the month, which is actually in line with what it was before COVID and before all the stimulus and inflation went on a wild ride. Now it's just one month, but that's kind of what was normal before. But then a day later you got the PPI, which are the producer prices and that was, you know, higher than people expected because you're already seeing energy prices on the rise again like we've mentioned and that's not slowing down.

That's accelerating, if anything right now. And the PPI usually leads the CPI, you know, by like a month or two or around there. Yeah, what else can we say? Inflation is still here. It's just a matter of what – you know, it's really what direction does it go, and does the Fed go and when moving ahead to kind of that story, but –

Dan Ferris: Yeah, I still feel like economic strength and decent rises or higher than expected, it just gives the Fed room to hike more. Even if it's 25 bps here and there, I don't think they're done, and of course that just changes the investment landscape. The whole world values investments if they're smart and know what they're doing. They value investments off of bond yields. So the higher the bond yields go, basically the higher your hurdle rate for every kind of investment is.

You know, when it was zero, OK, [laughs] that was a lower hurdle rate than 5%, 5.25%. So it changes everything, and I still don't think the changes have really hit the stock market yet with things like the CAPE ratio up around mega-bubble levels, just put it that way.

Corey McLaughlin: Yeah. It doesn't seem to me that the higher rates have been reflected in the market yet. I mean, maybe you could say that the 20% down in 2022 did that, but I don't know. I think that was more of like, OK, the Fed is going to raise rates to a certain level, and as they go higher than that level – like what if they go substantially higher than what they're saying right now? You know, what if they go another 100 basis points or something into next year?

I don't think that's been reflected in stocks yet, which I think is possible. I think it's a possibility the way things are going. You know, who knows what happens with the war in Ukraine? To me, there's a lot more pressures for inflation to the upside than there are things to knock it down. You know, the increasingly stuff going on with – I mean, the stuff I'm hearing with China and Taiwan now, that's really getting – I think that's getting way more serious. It's been serious, but I think that's a whole thing – I'm talking that's probably a bit farther down the road, but conflicts like that can bump inflation back up real quick and then we're at – you know, the Fed needed to do even higher rates for any reason.

Dan Ferris: My wife is particularly irked about all the money that the U.S. sends to Ukraine, and this morning – I mean, I'm telling you, Corey, it was like – it must've been 5:30 or something. I'm sitting in here at my desk at, like, 5 or 5:30 and this voice comes down the hall and says, "He's giving them another $13 billion!"

[Laughter]

And my first thought was actually just what you said. I thought, OK, well, we're not having a recession maybe, but stuff is going to cost more because we keep – whenever you hear that, you just sort of – all the baggage tags along with it. We're running a huge deficit, we have to issue more debt, which is basically printing money, et cetera, et cetera. So, you know, all of that sort of tags along when I hear about government spending in any context, you know, additional.

Corey McLaughlin: Yeah. No, for sure. I mean, that was a big story I think over the past week, was with the bond market, with the yields. Did you see they had the latest Treasury auctions for 30-year bonds, and the Fed bought almost 40% of the $23 billion in 30-year bonds that were issued. Now it's to finance all the fiscal spending.

Had that not happened, can you imagine where the yields would be? I mean, this is all while they're supposed trimming their balance sheet too, so it's –

Dan Ferris: Yeah, this is tightening? Yeah. [Laughs] On Twitter, Rudy Havenstein is a massive voice in finance on Twitter, and he's like, "This is tightening?" He just publishes a chart of the Fed's balance sheet and it's just like a rocket ship with this little blip up at the top where they say they're reducing the balance sheet, but they're really not. You're right. They're just buying and buying.

Corey McLaughlin: Yeah. And I go back to what happened in March too with the banks. You know, let's not just gloss over the fact that they stepped in and provided all that liquidity lending ability to the banks, you know, directly. And if you follow kind of a chart of – if you count that as money supply to the stock market, it's very close.

Dan Ferris: Yeah.

Corey McLaughlin: I can't get these things out of my head, you know, either. Fiscal spending is just – it's out of control.

Dan Ferris: Right. Anything they want. But speaking of banks, you know, is the Fed going to be required to do more or less of that in the next year with Moody's finally taking action on 27 banks? Moody's is like – all the ratings agencies are late to the party. It's kind of a screwed-up business because they're procyclical.

If they downgrade something, you know, they're scared at the bottom along with everybody else, right? And they're optimistic at the top along with everybody else. So the downgrades don't come until after the thing that causes them, right? And they've downgraded 10 banks and they've put, I guess, six of them, like major banks like U.S. Bank and Mellon and stuff, and Truist Financial – Truist less of a surprise because of all the broker deposits, but still – they put them on review for downgrade, and then 11 more they didn't downgrade the ratings, but they changed them from stable outlook to negative outlook.

Now you tell me that that business isn't really weird. How do you change the outlook from stable to negative without downgrading a notch? I don't know.

Corey McLaughlin: Yeah. I don't know. I'm not about to try to make sense of –

Dan Ferris: It's very Wall Street-y.

Corey McLaughlin: Yeah. I'm not about to try to make sense of anything with the ratings agencies other than great, they're pointing these things out now. [Laughs]

Dan Ferris: I need to pile on. Sorry, I need to pile on. Enron was investment grade four days before bankruptcy, Lehman Brothers was investment grade 15 days before bankruptcy, et cetera, et cetera. [Laughs]

Corey McLaughlin: Right. Their relationships just –

Dan Ferris: Anyway, it just confirms what's happening.

Corey McLaughlin: – confirm the nature of that business. Their relationships are way too close to the things that they're covering to have an unbiased opinion.

Dan Ferris: Yeah.

Corey McLaughlin: Like it's just – I don't know.

Dan Ferris: They're paid by them, yeah.

Corey McLaughlin: Yeah. I don't pay attention to it very much other than it gives me something to talk about, you know, on the – when – because one of the banks that they didn't downgrade to negative was Capital One, right? Which has a lot of subprime customers, you know, that they've been lending to. You know, that's a thing to talk about why this is happening, you know, and why they are more at risk than others, and the state of the consumer is not great, right?

The debt costs keep going up and up and the first things that are going to go are the subprime loans. You know, they're just going to poof. Somebody's got to – they're going to go. Where are they going to go? I don't know.

Dan Ferris: Yeah.

Corey McLaughlin: So, you know, it's worth thinking about from that perspective, but as far as A, B, C, incomplete, whatever, I feel like I'm back in middle school or whatever about grades that don't matter.

Dan Ferris: [Laughs] Yeah. No, you're right. I mean, the lousy credits are starting to get wiped out and, you know, we could take, what, Yellow Corp declared bankruptcy after flirting with it three times in the past 13, 14 years. Bed, Bath & Beyond, of course, declared bankruptcy. You know, I certainly believe AMC is headed that way, et cetera, et cetera.

I mean, there's a lot of crappy credits that I think are going to fall out of bed in the next six to 12 months. And you're right, a lot of individuals are in that position too. I saw a stat the other day that said 36% of Americans have less ready cash for an emergency or something like that than debt. I thought that sounded inverted. I think it should probably be 64%, not 36%. It didn't sound right to me.

I'm sure there's a lot more people who have, you know, less cash than debt. And with rates going up, and a lot of that is consumer debt, credit card rates are 25% or something. It's crazy. So yeah, a credit event is, I believe, more likely.

Corey McLaughlin: It's coming. It'll happen eventually, I think, no matter how much the government and Federal Reserve want to prevent it from happening.

Dan Ferris: Yeah.

Corey McLaughlin: I think every time they try to prevent it from happening just makes it worse, inevitably, when it inevitably happens.

Dan Ferris: It does.

Corey McLaughlin: Which they've done for – it's not a new story.

Dan Ferris: It's a penny behind the fuse. You keep the lights on and eventually you burn the house down.

Corey McLaughlin: Yeah. I'd rather own a farm, I can tell you that, and just not have to worry about – grow my own food, live on the farmland, not have to worry about food inflation or anything else, and just work, right? [Laughs] Work and do it.

Dan Ferris: Right.

Corey McLaughlin: But that's easier said than done. It's very hard to run a farm.

Dan Ferris: It is.

Corey McLaughlin: I'm referring to our guest, by the way, in case that wasn't apparent.

Dan Ferris: Yes. No, that was apparent, and I can't wait to hear what he has to say about this because I admit I haven't done – there's a couple of farmland stocks out there, but I haven't done the deep dive on them. In fact, I probably couldn't even name them both right now. It's an interesting topic. It's interesting for a number of reasons, one of which is that the prices have come up so much.

I'm like, what is this guy going to say about the way prices have soared? Is it still attractive? Is it still the wonderful thing that people have thought it was for the past few years? I guess, you know, Bill Gates wouldn't be trying to buy up all the farmland in the world, according to the most paranoid folks on social media, if it weren't somehow attractive.

So instead of, you know, taking a wild guess about all this stuff and talking about our guest, let's talk to him. His name is Artem Milinchuk, and he's with a company called FarmTogether at FarmTogether.com. Let's talk with him. Let's do it right now.

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Artem, welcome to the show. Thanks for being here.

Artem Milinchuk: Thank you, Dan. Great to be here.

Dan Ferris: So we want to talk about farmland, obviously. That's why we have you on the show. I think probably since our listeners are most often – they most often hear me talk about stocks and bonds and things, right? So they're not used to us talking about farmland, so maybe you could just sort of tell them why we're even bothering, basically. [Laughs] Why are we even bothering to think about farmland as an investment right now?

Artem Milinchuk: Absolutely. So I think the proven science now in long-term investing is that you need to build a diversified portfolio that provides you with best long-term, risk-adjusted returns. So when we look at farmland, you have really strong historical returns. In the last 30 years, the index has delivered 10.5% net returns with also comparatively low volatility of about 6%, 7%, which is very favorable when compared to stocks, compared to real estate, to gold, a lot of other asset classes.

It also is uncorrelated to most other asset classes. You get this really nice diversification. And what's been really important to a lot of our investors in the last few years is farmland does really well in periods of inflation, in periods of recession, and we had – like the last few years have been phenomenal. We've had a big drop in – I guess technically a recession during the pandemic when everything was down in Q2 2020 and farming was up.

Then we had a massive rally and then everything crashed. Now we had this really high-inflation, high-interest-rate environment, and so farmland has just been steady as she goes. So there's appreciation of, you know, 5% to 7%, 8% for the last few years. So from a personal perspective, sometimes I think about my investing is return on headache or return on sleepless nights. I don't want to be spending my time investing.

I want to be spending time living my life, and you really invest to reach financial goals, and from that perspective, when you invest in farmland, and that's why I started the company, you know it's a product that's going to be needed for the next 100 years. You know that things are not going to fundamentally change. People will have to eat. There's no uncertainty around what the underlying asset class produces.

When we think about latest crazes, whether it was, you know, back in 2010, 3D printing was going to be this big, new thing. No one even know what's going on there. Crypto was going to change everything, right? Now no one's thinking about it. So I think farmland is – to answer your question, why should you care about it – it's just a good addition to a diversified portfolio along with stocks, with bonds, with real estate, with infrastructure, with timber, with gold, with crypto maybe. You name it.

Dan Ferris: All right. I buy that. [Laughs] So I notice if you look around, you can just sort of Google around the Internet and find that – like the last two years, farmland has really done really well. The prices have gone up, put it that way.

I realize interest rates have gone up, but I can't find any evidence that that's affected farmland prices very much at all. I guess my first question would be has it affected them? And second, you know, with farmland at current prices, you still think it's a good long-term investment?

Artem Milinchuk: Good question. So one, interest rates affecting prices of farmland. I wish they did, because right now we're finding that – to answer your second question – the prices are high. We are seeing fewer opportunities. We are putting fewer deals on our platform because we're not seeing the same level of attractive returns that we saw a couple years ago.

But we're still finding good opportunities. There's enough of them that make sense long term. I think the reason for that is, one, farmland is an asset class. This is going to come as a surprise to you. Almost everyone I talk to. It actually has very low leverage.

Dan Ferris: Really?

Artem Milinchuk: The debt-to-asset ratio on farmland as an asset class is 13% – one, three. When you look at stocks, bonds, real estate, it's 50%, 60%, 70%, 80% leverage. So there's just not a lot of reasons to sell because you're not beholden to suddenly paying much higher interest rates. So the reason people sell farmland is what we call the three D's – death, divorce, debt – and as I mentioned, debt is quite low on a lot of farms.

I was just talking to a gentleman who has been farming in Ventura County in South California since 1870, so there's no debt. They have no reason to pass the farm, to see the farm, and it's really also a lifestyle where they have workers living on the property, they have now multiple family members that get together. They have a beautiful house. There's so much history on it that, you know, just there's no reason for them to sell even if rates are up.

One last thing I'll say, when you look at USDA and you look at the net income margin of farmland, so gross cash receipts for farmers and then the net income, it is very high. It never falls below 15% or something like that. So it's 15% to 30% net income margin, which is a very attractive industry if you think about it. You know, airlines seem to go bankrupt all the time, but that's because you're not calculating the implied value of farmland in the rental part of that. So a lot of farms, they own their land, yeah.

Dan Ferris: 15% to 30% net margins? That blows me away. You know, I tend to think of the production of any commodity, of all commodities, as being this highly cyclical thing where you're lucky if you can make 10% or 5% even net. And I think of them all as loaded up with debt too. But you're saying generally speaking, farmland is not loaded up with debt and is really profitable. That shocks me, I have to say. You're shocking me all around here.

[Laughter]

Artem Milinchuk: And, you know, I just want to kind of double click on that. If a farmer that owns their land would have to pay their rent on their land, then that net income margin does fall to something like 3%, 5%, but the reason it's so high is because 60% of farmland in the U.S. is owned and operated, and now the prices are so high that if you want to get into farming, well, you should've been born into a farming family. Go back 50 years and be born into it or be rich, because your land is very expensive for a lot of reasons, from again, lifestyle to how good of a capital preservation it is to knowing the land really well.

Farmers are able to spread the experience across the region and farm more acres. So it's a very unique asset class. I mean, I love it. It's very complicated until FarmTogether and a few other players out there. The only want to do it, you'd have to go in, have a few million dollars to buy a farm.

Dan Ferris: Right. That's interesting. So institutions have finally become a force in homebuying, right? Institutions have bought individual homes, like thousands and tens of thousands of them as an investment. Is there the same interest in farmland from large financial institutions? I know there's interest from billionaires, people like Ted Turner and Bill Gates and all these people.

Artem Milinchuk: Yes, sir.

Dan Ferris: Is there interest from institutions? And do they affect what you do?

Artem Milinchuk: There is interest from institutions. It's been growing. There's maybe $15 billion to $30 billion, $40 billion invested in U.S. farmland, but U.S. farmland is a $3 trillion, $3.5 trillion market, so it's a drop in the bucket. I think where institutions do drive the price a little bit is in places like California, but generally we find that most of the time we're competing with other farmers or local type of investors that know the region and understand intrinsic value.

98% of farmland in the United States is family owned, so corporations, institutions, they don't really play a role right now. And I do want to say good things about them because there's understandable anxiety with some people that large corporations or institutions are buying it. One, they are very, very conscientious about their ESG components, right? They have their reputation on the line.

So if you are someone like Nuveen that manages north of $1 trillion total and the farmland portfolio is sizeable but it's a fraction of what they own, they are very careful with how they manage their reputation. So also the kind of end owners of farmland are typically regular folks. For example, I used to work at Ontario Teachers' Pension Plan up in Canada. They literally benefit the teachers of Ontario, so I don't think it's some sort of nefarious group that doesn't deserve to get access to great farmland in the U.S. and Canada.

So I think overall it's a positive thing. Farmers are getting more capital, they can be more creative with what they do, and what we have done with our deals, we actually have helped some really incredible farming families expand their business. So I think it's a win-win and we shouldn't be afraid or concerned that institutions or even billionaires are investing in land.

Dan Ferris: OK. So you answered my next question which was, you know, if 98% are family owned, how big is the market really for you?

Artem Milinchuk: Yeah. The market is big, and here is why. The average age of a farmer is 60 and it's getting higher and higher. So a lot of farmers are retiring and kids don't want to be farmers, so there's a consolidation happening and a big turnover in ownership of land. So in the next 20 years, USDA I think estimates something like two-thirds of all farmland will change hands. So we're going through this not even generational shift but once in the lifetime of an industry shift in ownership, in practice, and so there's a lot that's happening, and that's why I think the market for us is actually absolutely massive.

Dan Ferris: All right. So I do want to talk a little bit about what you do specifically. You invest other people's money in farmland, right?

Artem Milinchuk: Yes, sir.

Dan Ferris: It sounds like it would be a really fantastic income play when you described the margins, and you described the capital gains over a long period of time. That sounds great... 10.5%. I think the chart on your website starts in 1992. So hey, 10.5% since then, great.

Let's do it for, you know, another 30 years or whatever. But what would the income look like with prices where they are right now? Income to the investor, right?

Artem Milinchuk: Yeah. So the 10.5% includes both price appreciation and dividends paid out every year, so it's the total return. If we break that down very roughly, 50% of that would be land price appreciation, and 50% would be the current income that investors received every year. So to answer your question, right now on raw crops – this would be corn, soybean type farms which are considered less risky and lower return investments – would be 2% to 3%.

So it's very low given where the Treasury is at right now, but the total return that we target is 6% to 7%, which again might seem low. But a few reasons why we think it's attractive, one, the Treasury returns are nominal returns. So if inflation is high then you could lose money, whereas farmland has done really well in periods of inflation, so you have that historical inflation hedge to fall on. Then you have price appreciation.

On the permanent crop side, so this would be your trees, your bushes, almonds, pistachios, citruses, applies, avocados, when we talk about permanent crop returns, we're talking about something like 9% to 11% total net returns, and permanent crops are your almond trees, your pistachios, your citruses, your apples. Those are typically a more involved type of farming. They require higher attention to detail, and this is why FarmTogether focuses on that segment. We have a great team that comes from some of the best farming companies and institutional investors in the world, and we're very involved with how we manage our farms.

We also partner with great operators. So as an investor, let's say you even had, call it, $10 million to spend just on farmland. You'd still have to pick the best operators, the best land, continuously monitor it. That is a lot. So that's why farmland has so far been so untapped by investors, because it's just not enough expertise to do it scalable.

So one thing I'm really proud about, at FarmTogether we have developed a technology called Terra. It's basically our internal Bloomberg that allows us to scaleably source, underwrite, analyze, manage this very offline market of farms, and there's a lot going on. We talked about real estate just now. We're 20 years behind real estate, both in terms of financial sophistication and data reliability. So we're kind of bridging that gap building this internal Zillow/Bloomberg, and U.S. investors get a benefit from that.

Dan Ferris: That's great.

Artem Milinchuk: Thank you. [Laughs]

Dan Ferris: Yeah. I love the sound of that. I mean, any market that's 20 years behind something else, that's a great opportunity. So just looking at your website here, it looks like you're in Illinois, Oklahoma, Colorado, Nebraska, Idaho, and then all three West Coast states, Washington, Oregon, California. That's still correct? That's where you are?

Artem Milinchuk: That's still correct, yep. The site is up to date.

Dan Ferris: Are you looking at any new states?

Artem Milinchuk: We are. We're looking at Florida.

Dan Ferris: Oh, Florida.

Artem Milinchuk: Florida is really interesting. We're looking at I want to say Texas and potentially New Mexico, Arizona. We're also looking internationally. Now this is more medium term, but farming, at the end of the day, is a commodity business. You have to go to the lowest-cost producers, and there's some really interesting investment opportunities in Latin America, for example, and up in Canada.

Dan Ferris: Yeah.

Artem Milinchuk: Also, you know, it's weather. It's weather investment. So one, climate change. Some places are becoming better to farm in Canada. Some are getting worse. So we have to account for that as well.

Dan Ferris: So let's see. It looks like there's four Midwestern-ish kind of states or three – I mean, Oklahoma, Illinois, and Nebraska. But then you've got these four western states, and it looks like the bulk of your portfolio is there.

Artem Milinchuk: That's correct.

Dan Ferris: Is there something just inherently more attractive about farmland on the West Coast as an investor versus other places?

Artem Milinchuk: So I wouldn't say something is more or less attractive, although, of course, some states are better, some worse, but at the end of the day it all comes down to what is the price you're paying? But yes, West Coast – California, Washington, Oregon, especially California just uniquely positioned to be these huge AG powerhouses. California, if it was a country, would be I think the fifth or sixth largest AG producer in the world as a country. It produces close to $40 billion, $50 billion of agricultural products.

So it is very attractive because you have a unique Mediterranean climate in California that is very conducive for growing. You have access to amazing ports and infrastructure to get your products out to the world. You have a lot of unique weather systems. I know California gets a lot of attention in the press whenever there's a drought, but spoiler alert, California has been going through droughts for the last thousands – hundreds of years. It's nothing new, and there's something like 14,000 levees and dams and canals, the largest manmade project in the world for managing water, to get water to cities and to farms.

Now there are some challenges as well that the state is addressing, but California is absolutely incredible. Washington, another state we're in, amazing water through the Columbia River. Incredible farming in apples. Oregon is becoming a huge hazelnut powerhouse, competing with Turkey, with excellent, delicious, large hazelnuts. Then the U.S. farmers, the most productive, innovative farmland in the world. So yeah, there's just a lot to love about U.S. farming in general, but West Coast in particular.

Dan Ferris: Yeah, I live in Oregon. We just drove up past those hazelnut orchards. Yeah, it's just gorgeous, and they're just go and go and go. There's just miles of them. It's interesting. When I tend to think – you know, I've lived on the West Coast for 20-odd years now, I tend to think of the West Coast as, you know, it's kind of Democrat-run, strict politics, a lot of restrictions and regulations, and that tends to make it more difficult, but I know also sometimes that can create an advantage because it makes it more difficult for new folks. Does that exist on the West Coast? Is it harder to start up a new farm?

Artem Milinchuk: We did not find that to be the case. Now absolutely there are regulations, but so far, at least from my perspective – and I know we're getting a little political, so no offense to anyone who's listening if their views are different – but I think the Californian Sustainable Ground Water Management Act is really important because it addresses the long-term sustainability of water in California so that California can continue to feed the world, but also to grow as a state. Oregon, I mean after the – so I used to be in Portland, and if you remember a couple of years ago, we had this heatwave, heat dome. In Oregon, they did a very smart, very correct thing where they introduced additional regulation regarding how workers are protected during heat waves, and that's a really important regulation.

I fully welcome it. We have seen so far mostly on the state level positive regulations and support. Now at the local county level, some counties in California will be anti-farming, and you'll see that in the way they, for example, manage their water allocation. We understand that. That's what you pay us for. As investors, we analyze it and we stand away from those places.

So yeah, you know, there's a [inaudible], the crisis in opportunity, so you have to navigate that, and then vice versa. If you are well versed in those regulations then you have an alpha, an edge in investing in that region, and that's where I think we really pride ourselves, again coming back to California, just because it's such a huge AG state. We get water really well, and so we can navigate around those regulations to get an edge and deliver alpha to our investors.

Dan Ferris: So Artem, according to your website, it seems to be indicating that your headquarters is in Delaware.

Artem Milinchuk: We are a fully remote team, so that is our kind of legal corporate address.

Dan Ferris: Oh, OK. All right. I see.

Artem Milinchuk: But farmland, unfortunately it's not all located in a small island. [Laughs] So farmland is everywhere, and our team is also everywhere.

Dan Ferris: Good. All right. I was just curious about that. So it's a Delaware corporation like many corporations.

Artem Milinchuk: Yes. It's FarmTogether, Inc. Yeah, it's a Delaware C Corp.

Dan Ferris: Right. And right now the website says you have $175 million under management.

Artem Milinchuk: That's correct.

Dan Ferris: Is that still true?

Artem Milinchuk: That's still true.

Dan Ferris: OK.

Artem Milinchuk: It's going to be a little bit more tomorrow. [Laughs]

Dan Ferris: Right. And with 1,600 clients? So these are not – I mean –

Artem Milinchuk: Close to 1,800 probably.

Dan Ferris: There must be a few large ones, but what's typical? What's an average investment?

Artem Milinchuk: Average investment is $30,000, $40,000, and minimum is $15,000. So this is indeed kind of a very spread out investment base. No one really dominates. Yeah, and that's what I like about it. It's really giving more people opportunity to invest in farmland, so we have everyone from, you know, the usual suspects like the doctors, the lawyers, the dentists to farmers and AG entrepreneurs to just regular folks who are looking for a good long-term investment.

Our investment base definitely skews older. I would say the average age – I mean, I rarely talk to anyone younger than 50. [Laughs] I feel that it's a more wiser investor base that has gone through a few cycles and is kind of done with the excitement of the stock markets, or at least want to add a bit more stability to their portfolio.

Dan Ferris: Yeah. I mean, that doesn't surprise me at all. We sell basically stock picks and bond picks and, you know, our audience is the same – we're all going after the same wealthy older folks, I think. There was at one point – I don't know if – I think it's still out there – there was a publicly traded vehicle for farmland. What was it called?

Artem Milinchuk: There are two.

Dan Ferris: Farmland Partners.

Artem Milinchuk: Farmland Partners and the other one is Gladstone, so two excellent vehicles. A lot of respect for both of them. They are the only two publicly traded farmland REITs, and they've been around for a while. So in a way, they are pioneers and trailblazers in the space. There is, of course, a number of differences in investing in a publicly traded REIT versus into a private fund that we have or into individual deals or through a separately managed account. Some of them are you have to buy at the price that the market is giving you, so sometimes it can be cheap, sometimes expensive, and you have to understand whether you kind of believe in that.

You don't get to pick the properties, you don't get to pick the amount of leverage, and you don't get access to direct operated deals. So it's all rental models, whereas FarmTogether, as you can surmise, you know, we have a much more active manager, and so we aim to generate high returns than a REIT would. But some of the other benefits over public REIT is they're liquid. Our deals have a 10-year lockup, and that's important for us because farm investing is a long-term game, so we wanted to make sure that we as a partner to farmers are aligned with them.

But, you know, that would be kind of, for example, a negative. We are working on the secondary market longer term.

Dan Ferris: So my question there is in precious metals royalties, like you basically can't buy a precious metals royalty for any kind of bargain price because the large publicly traded companies have zero cost of capital, like negative cost of capital. They issue shares and pay 20-plus-times royalties, and royalties are never cheap. So a public company, like any REIT in real estate, they have the same mojo kind of working for them so they can often outbid folks at similar returns. I'm just wondering – obviously these two publicly traded vehicles we're talking about, I mean they're barely $1 billion in market cap combined. So in a multitrillion-dollar market I see where it's not a huge –

Artem Milinchuk: It's tiny. It's tiny, yeah.

Dan Ferris: – force, yeah. But you haven't gone up against them and been outbid by them before?

Artem Milinchuk: No. No, we play in different markets.

Dan Ferris: OK.

Artem Milinchuk: Also, our target market is, call it, $1 million to $10 million farms, which oftentimes are too small for some of the large established institutional investors. It's a sufficient size for these guys, but they also focus on rental models, and rental models are more complicated in the permanent crop markets where you have, let's say, an almond orchard you want to rent out. Well, if you have a cornfield, that one you can rent out for a year because it's really just you plant, you get the harvest, you move on, and all you need to look out for is what's called the NPK level, so it's the fertilizer levels before and after need to be the same.

But it's very easy to rent out a, as we call it, piece of dirt, right? In an almond orchard, if I rent it out to you, let's say you collect the harvest the next year but you didn't take care of the trees, well I might just lose all the trees or a lot of the value because you didn't water them, you didn't fertilize them, you didn't prune them, you didn't take care of the pests. So the rental models need to be long term, and that then necessarily leads to what I think are fairly low returns. It's still a valid model, but just not, I think, as exciting as some of the other models that we have.

Dan Ferris: Gotcha. I hope you don't mind me sort of jumping around on topics, but you mentioned Florida before and I stored that one away because a friend of mine is a pecan farmer in Florida. What do you like in Florida? You think of Florida, everybody says, "Oh, oranges."

[Laughter]

Would you buy orange groves in Florida?

Artem Milinchuk: I don't think so. We're not looking at orange groves in Florida right now. We are looking – so I actually cannot disclose that because there's some really interesting pockets.

Dan Ferris: Oh. [Laughs] OK.

Artem Milinchuk: But Florida has some things going on for it.

Dan Ferris: OK. Fair enough, fair enough. And I suppose you couldn't disclose specific international targets either or –

Artem Milinchuk: No, international I'm very happy to talk about. It's not a secret at all. Like I mentioned, Canada is an exciting place. Chile, Brazil, even Argentina. Now there's are Mexico markets that are very complicated from a political, regulatory, and currency standpoint, so this would probably be more medium term for us. Australia though, that's a very well-developed market, in some ways more developed than the U.S., so definitely a market there.

Dan Ferris: Really?

Artem Milinchuk: Oh, yeah. Australia is –

Dan Ferris: In what way is Australia more developed?

Artem Milinchuk: It's just a more common thing to have institutional investors in farmland and to view it kind of more as an asset class. There's also some more tech around analyzing water, which is an issue in Australia, same as in California. Australians, in the way they invented infrastructure as an asset class. Macquarie, right? Their climb to fame was in infrastructure. So we just talked about royalties in precious metals.

In my previous life, I was also working for a natural resources investment fund, and Australia, same as Canada, and parts of the U.S. has a very developed this kind of natural resource muscle in the finance investment industry, so there's just kind of a lot of similarities. The thing about farmland, it's funny because I talk to people and they say, "Oh, that's such an exotic investment," [Laughs] but it's the oldest asset class. Literally our civilization, as a civilization we started when agriculture was invented. Before that, we were hunter-gatherers.

But because of how – there's a lot of unique things we talked about in farmland. I see my role at FarmTogether and FarmTogether's role as kind of a connector and a translator between the language of farming into the language of capital markets – risk, volatility, durations, timelines, tail risk, things like that. Once we do that, then I think farmers will get much more financing and it'll be good for everyone. There's so much we need to do with agriculture from transitioning to the 21st century, sustainability, ESG centric, climate friendly, modalities, more healthy, more organic, more diverse, that type of food, more nutritious, more delicious, affordable. It's super important, right?

Most people still live paycheck to paycheck, and grocery prices are vital to them. You know, we can't all be sipping on organic lattes in San Francisco.

Dan Ferris: [Laughs] Right.

Artem Milinchuk: So it's extremely important that food is affordable. And all those kinds of transitions require capital.

Dan Ferris: OK. I want to talk about one more thing before I get to my final question, and it's a big thing. So I'm kind of bullish on natural resources in general, and just take the example of oil and gas, because, of course, governments are kind of working against fossil fuel companies these days. I mean, Joe Biden says literally he wants to put them all out of business. So over the last five years, if you look at all the biggest companies in the industry and the industry as a whole, the amount of cash capital investment has just plummeted, right?

They're not developing new supply at the rate they once were. And you can see this in other industries too. That actually has made it a pretty decent investment because the world runs on fossil fuels, and you hear the same kind of rhetoric about farming lately. You know, farming is causing global warming is part of the new narrative, and it's all insane to me. But regardless of your politics, it seems like it would be setting up – if they really start to come after farming the way they've come after fossil fuels, and that's just beginning I think, then you'd wind up with the same dynamic because 7, 8 billion people still have to eat.

Artem Milinchuk: That's right.

Dan Ferris: So you can see the impacts in the spending of fossil fuel companies in the last especially five years. Is this even beginning to happen in the farming industry worldwide? Big investors – banks – being reluctant to finance farming?

Artem Milinchuk: So I would say I see some little shoots here and there, but nothing close to the oil and gas industry or the coal industry. Here's where I think some of the, call it, big events could happen. So one, if we do away with the ethanol mandate – I believe right now about 40% of all corn is used in ethanol. We're transitioning to electric cars. Whether that's a regulation or through the marketplace, we're not going to need 40% of our corn, so that will come down.

On the other hand, the emerging middle class everywhere – in China and globally – shifts to eating more proteins, more animal proteins, meat. So cows, you know, they eat corn, so it's a feed, so that could lead to still good long-term prices for corn. I think there could be some regulations, but more on the positive side, around sustainable, regenerative agriculture, paying farmers to store carbon to transition to better water management practices, electric John Deere vehicles, fewer emissions, things like that. And some of that again might come just from the economics where if your prices for diesel are skyrocketing, for gasoline are skyrocketing, or maybe you just get an electric John Deere tractor and be done with those issues.

With permanent crops, again the West Coast, they've never been huge beneficiaries of government subsidies or regulations, and that's what we like about it. It's a very market-based sector. People have been increasing – there's been a huge boost in global demand for pistachios and almonds, and that's because of the wonderful work that the marketing industry of those crops has been doing and because they're delicious, healthy, and nutritious. So there's just, I think, a maybe shift to healthy eating that's benefiting the farms we invest in, this kind of notion of slight snacking and being more mindful of what to eat versus this ultra-processed kind of cow that we don't even know where it came from. So for us, I don't think there's anything on the horizon that is a meaningful regulatory regime change.

Dan Ferris: OK. Fair enough, yeah. All right. So that does bring us to the final question, which is the same for every guest. I ask every guest no matter what the topic, even if it's a nonfinancial guest, which we have once in a while. Same exact question. Very simply that question is if you could leave our listeners with a single thought today, what would it be?

Artem Milinchuk: Well, I don't know if I have enough wisdom to give advice just yet. Does it have to be financial or nonfinancial?

Dan Ferris: It can be anything you want.

Artem Milinchuk: Anything.

Dan Ferris: Yeah.

Artem Milinchuk: Then for me it's just thinking long term. It's compounding interest. If you can think slightly longer term than anyone else, then you'll have a great life. And that's what I love about being in farming and in farmland. It's a very long-term thing and it just builds up on itself every day.

Dan Ferris: That sounds good to me, man. When we started talking when we first logged on, you were talking about wanting to live your life and just not wanting to think about your investments all the time, and farmland is like that, and I agree. Thinking long-term is a huge investment because nobody wants to do it. [Laughs] You know, it's a huge investment advantage because nobody wants to do it. So thank you for that thought, and thanks for being here, Artem. I really enjoyed talking with you.

Artem Milinchuk: Thank you so much, Dan. This was great. Thank you.

Dan Ferris: Many mainstream analysts are predicting that stocks will recover soon, but I say we'll instead witness a cash frenzy unlike we've experienced in 21 years before stocks recover, and I'm urging Americans not to buy a single stock until they see it. I predicted the Lehman Brothers crash in 2008, and I called the top of the Nasdaq in 2021. But this? This is the No. 1 most important thing to pay attention to for 2023.

And I'm not talking about another market crash or politics or inflation or any of these other things. As all this unfolds, the financial consequences of what I'm talking about could last for several decades if you don't understand what's happening. There will be winners and losers, and now is the time to decide which one you'll be. This is why I strongly encourage you to read about my warning totally free today. It's all spelled out in a free report we've put together.

Get the facts yourself. Go to www.StockDeadzone.com to get your free copy of this report. You can learn how to get my four steps to prepare for what's coming. Again, that's www.StockDeadzone for a free copy of this new report.

I enjoyed talking with Artem. I enjoy learning about new investments. I personally don't own a postage stamp-sized piece of farmland, so I'm not invested in it at all, but it's a really interesting asset class, long term. And like I said during the interview, the potential for the dynamic that has affected oil and gas to make farmland attractive is really interesting to me, long term. If you're talking about something like a 20-year or 30-year runway for an investment, that dynamic has to come into play because these people are serious. I think they're crazy, [laughs] you know, blaming global warming on farming, but I don't even care.

Don't tell me you're – don't write in and tell me you're a physicist and farming is terrible. I don't want to hear it. It just sounds a little crazy to say we need to stop doing so much farming when farming is like feeding the world. That's one reason why it's such a great long-term investment, as Artem said. We have to eat, so it's always going to be needed. And learning that the leverage is generally so low and that the net income can be so high blew me away. I did not know.

It shows you little I really know about farmland. That was great news. He gave me a lot of good news. I definitely want to go to FarmTogether.com – that's Artem's website – and check it out. I've read a little bit. I'm going to read some more. You might want to do the same.

You know, we're not affiliated with them in any way, OK? He's just a guest on the show. I'm not pushing any products or anything. I just think it's an interesting source of information. And two, also maybe I'll take a second look – I've looked at Gladstone Land and FPI Farm Partners, so maybe I'll take – Farmland Partners, sorry, is the other one – maybe I'll take another look at those, you know, just for informational purposes, and if I find a great investment in there, hey, you know, bonus.

But this, like oil and gas and other natural resources that I've discussed here and in both newsletters that I write, I think I need to start getting serious about farmland, and I think Artem just sort of fired the starting gun on my serious interest in it. Long time coming, late to the party but, you know, better late than never. I hope you enjoyed that.

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