Episode 193 - From College Classroom to 50,000 Acres: Investing in Farmland with LandFund Partners
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Discover how a chance meeting between a professor and student blossomed into managing 50,000 acres of premium farmland. Hear why investing in farmland with sustainable water resources offers both consistent income and long-term appreciation potential. Join Chris Morris and John Farris as they reveal how regenerative farming practices are restoring the land while delivering impressive returns for investors.
Please note that the views expressed by the hosts and guests are their own and do not necessarily represent the opinions of Faith Driven Investor.
All opinions expressed on this podcast, including the team and guests, are solely their opinions. Host and guests may maintain positions in the companies and securities discussed. This podcast is for informational purposes only and should not be relied upon as specific investment advice for any individual or organization.
Episode Transcript
Transcription is done by an AI software. While technology is an incredible tool to automate this process, there will be misspellings and typos that might accompany it. Please keep that in mind as you work through it.
Richard Cunningham You're listening to Faith Driven Investor, a podcast that highlights voices from a growing movement of Christ-following investors who believe that God owns it all and cares deeply about the heart posture behind our stewardship. Thanks for listening.
Narrator Hey everyone, all opinions expressed on this podcast, including the team and guests, are solely their opinions. Host and guests may maintain positions in the companies and securities discussed. And this podcast is for informational purposes only, and should not be relied upon as specific investment advice for any individual or organization. Thanks for listening.
Richard Cunningham Welcome back everyone to another episode of the Faith Driven Investor Podcast. It's the end of March. We're thrilled to have you with us. Luke, I'm fired up about our conversation today. We're talking farmland investing, ag investing with Chris Morris and John Farris of Land Fund Partners. What a joy to have you guys in the studio with us. Luke, you know these guys well, are big admirers of theirs. Before we say hey to them, man, how are you? Tell us a little about land fund partners from your angle.
Luke Roush You know, it's a shame that we're 195 podcasts into the FDI podcast. And this is the first conversation that we've had with an agricultural farmland investor. That's an important asset class. And there's also a lot of, I think, surprising in some ways ministry opportunities as these guys go about their work and think about the mandate to restore the earth. So I'm really excited. I've known John and Chris for a long time. I've known of the fund and been personally involved. and I'm really grateful to have them on today. So I'm looking forward to the conversation.
Richard Cunningham Well, gentlemen, coming to us from Nashville, Tennessee, today, John, as I understand you split some time between Nashville and Kentucky. Chris, you're in Nashville full-time. Great to have you guys with us. How's it going? Maybe give us a little bit of background on who you both are individually, how you guys met, and kind of the early origin stories of Land Fund as we dive into today's pod.
John Farris Yeah, thanks Richard, thanks Luke. And Luke, you may not know this story, but it's an epic God story. Your dad has a lot to do with Chris and I meeting.
Luke Roush I did not know that actually, this is awesome.
John Farris Yeah, so my background as an ag economist at the World Bank, moved back to Kentucky for my roots and was teaching at Center College where I went to school and Luke's dad was president there, amazing, amazing guy. And I was an adjunct professor and at the time they didn't offer health insurance to adjunct professors. In 2009, we just had our third child, our third daughter and I was leaving to go be a professor at University of Kentucky and Luke's dad got plan that I was gonna. leave the college because I couldn't get insurance because of the policy. And he stepped in and made a change to that policy. And then my very next class that I was teaching in the fall of 2009, Chris Morris was one of my star students.
Richard Cunningham That's so cool.
John Farris Yeah, land fund would not be, you know, it's kind of a divine intervention by John Roush and some others would not be here if it wasn't for Luke's dad. So that's kind of a cool way that brings it full circle. So yeah, Chris was one of my. My background had been at the World Bank and had done a lot of studying on water and the importance of water and how important it would be to feed the growing population of this earth over the next 50 years. And talked a little bit about it and had an idea and Chris had the pleasure of having him as a student both in the fall of 2009 and the spring of 2010. And maybe I'll let Chris take it from there.
Chris Morris Yeah, so yeah, definitely very cool story and amazing the ways that all this has come together, but yeah, Chris Morris, president of land fund, as John mentioned, we've been together since day one and even, you know, pre-founding of the firm, I'm from a small town in Kentucky called Maysville, Kentucky. Grew up in a pretty rural community. It was around farming, did some summer farm jobs. And that made me say, wow, I really need to go get a college degree. So I went to center college in Kentucky. to study economics and finance, met John, and it was an interesting time to be studying finance and investing in diversification post-financial crisis. Everything really changed in 08, 09, and farmland was one of those things that hit a radar and I had some familiarity with, and that entrepreneurial interest to go and start something with someone great like John. So yeah, so very full circle how it's come around.
Luke Roush Hey, and just, you know, because you'll leave this out, Chris, but you were also a collegiate athlete. So tell us about your illustrious golfing career. I think you're a national champion, right?
Chris Morris Yeah, a long time ago. So yeah, I played golf at center college and I was fortunate to get a little bit better every year and in 2011 won the national championship individual tournament and got the Jack Nicklaus award, got to meet Jack Nicklaus. And wow, that's great. You know, the team was the best team finish in school history and the NCAA tournament. And yeah, so, you know, it was very, very fun to do. Got to play a lot of free golf. D3 Athletics, can't promote it enough, but yeah, still great friends and learned a lot from the game and athletics and competition.
John Farris I played golf through Luke, but not at that level.
Richard Cunningham John knows better than to wager against Chris. Sounds like he's an absolute stick. Chris, one of our upcoming FDI podcast guests, but the podcast has already been recorded as a guy who leads a successful wealth management shop here in Austin named Travis Pinfield, 49 Financial. He just went and got to spend the day with Jack and Barbara Nicholas. Just some random connection, and he said he's never been more nervous in his life than putting with Jack Nicholas standing behind him, giving him instruction. He's like, dude, do you know who you are as you evaluate my putting stroke right now? So that's really cool to hear. So what was the moment? What was the magic moment? Was it Chris coming to John and saying, hey, I've got an idea for land fund, or was it professor going to student and saying, hey, you need to go start this thing? How did it come to fruition?
John Farris Here's the magic moment is like after doing some studying, I really wanted to buy a hundred acres of farmland and that's all I could afford. And so the magic moment was through the grace of God, I met Billy Ussery down in the Mid-South. I knew that I wanted to buy in the Mid-South and because of the water situation, I've done a lot of research and studied how important that would be and we can go into that in a bit, but. Billy said, you know, you seem like a nice guy, so I want to tell you like 100 acres. That's not going to do anything. And it's really not a great investment. You need scale, you know, to be able to have an investable product, you need, you know, about 2,500 acres. And we went over a few things and I said to Billy, Hey, Billy, you know, if I was to raise the capital and find investors to invest alongside me, would you be willing to manage the farms? with us and would you be willing to help us find the farms and what would be something you and your family would like to invest in? And you know, he thought I was a dreamer. So he said, yes, I don't know if you thought I would come back. So I set out and contacted Chris and said to Chris, you know, hey, I got this idea. I want to start a land fund or farm investing fund in the U.S. in the Mid-South. Chris was Thanks for watching! I think licking his wounds from the PGA Tour qualifying and said, you know, sure, I'll come alongside you. And so we set out and started Land Fund Partners in 2012 and had our first fund in 2013 with the 2500 acre farm in Midland Lake, Mississippi. So we're just very fortunate. It's really evolved since then. That was 2500 acres. Now we manage about 50,000 acres in the Mid-South and, you know, we can go into how and Bye. different aspects of farmland in the mid-south, but we really think we've built something that couldn't be replicated. If we had started today and tried to do it 13 years from now, we don't think we could replicate it. And it's just, we were just fortunate timing, grace of God, just very lucky, very fortunate.
Luke Roush Maybe a term that I was not familiar with before getting to know you guys, but I've become familiar with and I've probably repeated it a thousand times since our first meeting, but the alluvian aquifer. Talk a little bit about that. Talk a little bit about just kind of the play. Why Mid-South, right? There's a bunch of farmland investors up in the Midwest and kind of out West. Why Mid-South? And sort of just talk about the importance of water and sort of what the investment thesis is there as a resource that God's given us. I think it's relevant here.
Chris Morris Yeah, so the Mississippi alluvial aquifer is underneath 100% of our farmland assets. You can actually look at it, you can Google it, see where it is. Not every part of it is created equal, but by our analysis, there's about 320 years of remaining water availability underneath our farms. So we just think that that's incredibly important when you see some of the overuse of water aquifers in other parts of the country, other parts of the world. you know, pollution, other factors. And our aquifer system is somewhat unique because it is replenished by the Mississippi River. So the Mississippi River leaves the third largest river in the world and it comes into that Mississippi Delta area. You can almost think of the aquifer like a big bathtub. So as you pump water out, it does draw down a bit, but then each spring, the river level rises. and it essentially fills that bathtub back up would be one way of thinking of it in a very rudimentary fashion. But yeah, it's a tremendous resource. We have over 300 wells on our portfolio that are irrigating the farms. So the wells go about 150 feet deep and in some areas the water level is about 30 feet under the surface. So very easy to tap into and efficiently irrigate the land, our portfolios over.
Speaker 6 92% irrigated, which is a pretty large amount. Yeah, let me just jump in there, and that's different than...
John Farris Midwest probably a lot of people are familiar with the Corn Belt and the Midwest and that's a great fertile area of the country but the difference being they're very weather dependent. They're fortunate to have the seasonality and the good rains and mother nature is kind to them most years but some years you you experience drought and you can't depend on that rain and the difference being mid-south because we're 92% irrigated you know our farmers can use drip irrigation and other irrigation techniques. even if it doesn't rain, and that allows them to, you know, prosper in times. And then it's also a little warmer. So we need that irrigation and that irrigation system. But what we've seen when our thesis was when we focused in the area on the alluvial aquifer was that, you know, eventually prices in the Midwest for farmland per acre and the Mid-South where we are would converge. And when we started in 2012, prices per acre were about 140% higher than the Mid-South. And now that has converged to where they're just 100% higher. But when we look at it, and when I say 100% higher, you're talking about similar land with the same yield. So you have this corn that may yield the same in the Mid-South as Midwest high quality farmland trading for or selling for $15,000 an acre in the Midwest and in the Mid-South where we are, our portfolio is about $8,000 an acre. So. When we look at that, we're like, and as an economist, you try to figure that out because we have crop diversity, we have the water, we have similar yields. So we eventually think over time, those prices will converge. And we've seen slow but steady incremental progress in that convergence theory, and that's what we started with.
Richard Cunningham So John, you're getting into a little bit of explain kind of the mechanics of the business and how this process works when you guys go find a farm or a farmer, what building that relationship looks like, and just kind of land funds value prop, if you will.
John Farris Yes, we really couldn't do it without our farm managers. They live in the area, they grew up in the area, they go to church in the area, they eat at the local diner. And we have fortunate to have three full-time and one part-time farm managers who help us. And they're our boots on the ground. They're our secret sauce, as I would say. They really know the area, they know all the farmers and they've taught us that it's real important to be good stewards of the land and of the community. And that has come back to us. The way we've treated people over time in the mid-south as opposed to other funds. So there are other farmland investment funds in the area, bigger funds and funded by pensions and other things. And sometimes the members of the community treated more like an asset and not like a partnership. And we treated, it's very important to us to be good stewards of the land, good neighbors. and that's really come around. And the mechanics really go like this. We identify through our farm managers help identify land for sale. Oftentimes we're buying from families. So it's a very emotional transaction for them. They may, like me, have three daughters that have moved away. And the average age of a farmer in the U.S. is close to 60. So the farmer may be ready to retire and they need to sell the land because they have a lot of their capital and their wealth tied up into the land. So we step in with our farm managers and we have a 20 point due diligence checklist that the land has to pass. And we evaluate the land based on different types of crops, the soil, many different factors. And we also underwrite with our farmers, not our farm managers, but our farmers. So we have about 20 farmers that work with us. And those farmers, they are often taken to the land and say, what would you rent this ground for? And that starts our underwriting process. So we know exactly what would you plant? What do you think about this soil? And that allows us to have a lot of underwriting for farmers like some years we'll underwrite close to a billion dollars worth of farmland but only close on 20 million. And that's just because we have a very stringent process and return hurdle that we need the land to make. So that's what we start with. That's the starting point. Maybe Chris, you wanna say how it goes from there?
Chris Morris Yeah. And to add onto that, you know, so we'll acquire an asset after, as John mentioned, a really strict due diligence process. And then we're going to lease that farm out to one of our farmers. And, you know, important to note, one of the things that we're doing at every farm is saying, how do we make this farm better? Sometimes it's pretty straightforward where, hey, we can put in a new irrigation system that really helps increase the productivity and cash flows from the farm, grain bins, other assets. But then regenerative farming is also something that we seek to implement on every single farm. And all of our farmers have, in our lease agreements, they agree to do at least one regenerative practice on that farm per year. And we named our fund, it's called actually the Soil Enrichment Fund. So from the outset, we have been very intentional about incorporating regenerative farming into what we do. Thanks for watching! That's, you know, for a few reasons, but particularly restoring soil health and, you know, within the Christian worldview of restoring land to how it was intended to be over the last 60 or 70 years, you know, industrial farming has been great. There've been a lot of positives about being able to feed the world and higher crop yields, et cetera. But one of the side effects of that, you know, synthetic fertilizers, herbicides, pesticides, has been that in some ways the soil has been degraded. more erosion, just natural soil health has dropped off. And regenerative farming is incorporating a suite of practices that actually, you know, you can think about like using nature to heal nature. You know, it was designed to work a certain way. And there are things like cover cropping and no till, reduced till, all these things that can actually improve soil health over time, which doesn't just make the soil better, it makes your farmer more profitable. And it's really a with the farmers to come along. and walk with us in that process of restoring soil health.
Luke Roush I want to go deeper on that, Chris, but before we do, just something that'll be familiar to our listeners we've talked about before in the context of investing and faith-driven investing in particular, you know, I grew up with kind of the two-part gospel of, you know, man and woman is sinful and we need a savior, right? That's sort of the two-part gospel that I grew up with. The reality is that the biblical narrative is not a two-part gospel, it's a four-part gospel. The first is the creation mandate right the world was made in seven days and God has made us in his image, therefore we are creative, right? So we're creating new things. Of course, kind of the fall of man and sort of bad decisions that we make in need of a savior, those two parts are very real. But then there's this sort of fourth part of the gospel too, that sort of a meta-narrative that runs through scripture around restoration, that we're actually called to actually try to restore the earth, to try to restore human relationship to what was originally intended. in the garden, right? And so when we say the Lord's Prayer, we say that kingdom come here on earth as it is in heaven. This idea of sort of the world burning and going away and then we're all going someplace else, that's actually not a biblical construct. The construct is that like, actually, we are to restore the earth as it was originally intended in the garden. And that's something that has really resonated with me, as you guys have crafted a strategy either kind of wittingly in that direction or sort of unwittingly, you know, God led you in that direction. It's actually one of the beautiful narratives of what's possible in the realm of kind of farming and ag investing. Talk a little bit more about what that journey has been like for you guys as you've gone down this road in partnership with your farmers, right? Cause it's not necessarily something that you do it and then you see the payoff, you know, in day two, right? It's something you got to stick with and you got to build over time. I'd love to have you guys just comment a bit more on that.
John Farris Yeah, I'd love to, and I think that's how we're unique. Not only are we unique that we're just focused in the Mid-South and on our water thesis, but we have regenerative practice and restoration practices on 100% of our farms. And that is another sort of epic God story. I was riding with our farm manager, Billy Ussery, again in 2018, and I wish Billy was here to help tell the story. we were looking at a neighboring farm and he said, you know, I grew up here. I've been here my whole life and that farm's only done 40 bushels per acre of beans. I've never seen it do more. Now it's doing 60. And I said, what are they doing? And he said, well, they're doing this thing called regenerative farming. So of course, you know, as an economist, I had just dove right into it and try to figure out like, what does that mean and how do we do that? And you can look how fertile that ground was. So in 2019, we decided to try a pilot on regenerative farming on one of our farms. And we realized there's a mini J curve. Those investors, you're gonna lose money the first year, first couple of years, but that's because you're gonna be investing in the soil and doing cover crops and doing things that are a little more expensive than just leaving the ground it says. But over time, All the research and what we've seen shows that then three to five years in, the soil's gonna be a lot healthier. It's gonna require less pesticides, fertilizer. You're also, your yields are gonna be higher. Your water use is gonna be lower. You're really doing what, you know, the way that God created the earth to restore it. And you're tilling less. You're not going deeper into the earth. You're really making that soil. So you're taking less runs across the farm to plant, so less tilling, and so you're saving money on the diesel. So. the researchers, you should be making 30 to 40% higher net income three to five years out by these practices. So it's really a win-win. The hard part for us, and we have a number of anecdotal stories on this, but the hard part for us was to convince the farmers that this needed to be done, especially in year one and two. We had a 70-year-old farmer, one of our bigger farmers who had been farming since he was 15, and he said, I've never done a cover crop. And we said, you know. come with us on this David, you know, try it out. And he did. And the great part about that story is not only does he do cover cropping every year on the land fund farms, but he started to do it on his other farms. And it's that leading by example. And now we see it, the practices that we've taught our 20 farmers being adopted across the Mid-South. And that's, you know, for us a beautiful thing because that example hopefully will spread. You know, we have the largest cover cropping. You see it from satellites. You can see that, you know, our cover cropping program, which is really cool. And we're really proud of we're really proud of the fact that we've spread that message of restoring the earth and that the farmers have now bought in. And we go over the regenerative plan for our farms. And we have it in the lease by February of every year. So we just finished it last month. So, yeah, and Chris may want to add a few things there, but it's something that we're really proud of. We're really proud that we are leading. by example, and it's doing wonderful things for the Earth.
Richard Cunningham Man, that's awesome. I'm about to expose myself so bad. I'm born and raised in downtown Austin. Even though it is the state of Texas, I'm a total city yuppie. And so you guys have said it multiple times, but talk to me about this process of cover crops. Like I don't even know what we're talking about there. And some of it like kind of double click into some of these regenerative practices. And I mean, Luke is just laughing at me so hard right now as I asked this question. But then also, is it that big of a deal? I mean, like we're in the make America healthy again era right now. And this is, I mean, it is talked about 24 seven and kind of just like, hey, let's get the soil back to as what you guys are talking about. Just like what it was intended to be, God's good design. I mean, is that what you guys are seeing? Like, are you confirming this right now in your work that this is a really big deal and kind of what's going on, what we're putting on our crops.
Chris Morris Yeah, I'll take it for stabs. So yes, so great question. And certainly there are a lot of we're ag economics, you know, 500 seminar, not farmland 101 right now. So happy to back up. So yeah, so most people would be familiar with a typical cash crop, right? So typically, you would have, let's say soybeans, for example, planted in May, farmers and plants, it grows all year, it's harvested and September, October timeframe and is sold to the local grain facility and that soybean crop turns into cash. The farmers paid cash money for that crop. And this is how it generally is done. That's the end of the story for that farm. What a cover crop is, is then after you harvest the main cash commodity, you go back and you plant a crop that is not for cash value necessarily. different types of grasses, cereal rye, something called brassicas, turnips and radishes, wild turnips that are planted. And then what happens is those grow all winter into the spring. So instead of the land laying fallow, getting rained on, snowed on, becoming hard pan, you know, just laying there barren, you're actually planting a living breathing crop that is taking breathing carbon dioxide. carbon is going through that plant, through the root system back into the earth, which actually increases organic carbon. And that is a key factor in soil health and how productive that soil can be. So it's a really beautiful cycle incorporating those cover crops in. And another benefit is when you go to plant again in April or May of the next year, the root system of that you know, living, breathing plant has kept the soil broken up and it's not hard pan, it's not packed down so you don't have to heavy till and you can then it's more easy to do those things like low till, no till, which, you know, even further increases the benefits.
Speaker 6 So it's a really virtuous cycle. And that's what it covers. It's pretty cool. Chris, why would someone till? Like maybe just grab tilling, like why you.
John Farris till versus no till and how the planting works.
Chris Morris Yeah, so if you have a hard pan, right? It's very hard to get a seed into the ground. So if you fast forward to the spring, if the land is hard packed, then you're gonna have to go till and you're gonna drag an implement behind your tractor that is going to go sometimes eight, 10, 12 inches deep into the earth and turn up that soil to break the surface so that you can drop seeds in a row down the field. And so you don't have to disrupt the natural soil. biology as much when you do things like cover cropping you can do what's called strip till or no till where it's much less Invasive and that allows the soil to keep doing its thing to store Organic carbon and to become more productive
Luke Roush Well, in the same way that we know a lot more about the microbiome and the human gut today than we did a few years ago, there's also a microbiome in the soil, right? And so every time you sort of turn that up, it's some version of kind of sterilizing it. But to the extent that you can allow that microbiome to continue to build, you've got a much healthier condition for future crops. Maybe speak a little bit about what that looks like. Well, first off, make sure that I'm accurate in what I just said.
John Farris You're 100% right.
Luke Roush Second off, maybe speak a little bit about just the timeframe required to kind of see results from this sort of innovation.
John Farris Yes, I mean, we've seen it in the Midwest. It's a short time frame. It's, you know, one to two years. For the Mid-South, because of historical practices and the way ground has been farmed, it typically takes about three years for us to see the results that we want. And we're well into it with many of our farms and we've seen the results and we're believers and we're going to keep doing it. You know, when we started the Soil Enrichment Fund in 2021, We told all of our investors, we're going to do this. We're going to do this for all of our farms. We're going to be intentional about it. Some firms, the funds, and I don't want to speak highly of them, but give it lip service. They say we're regenerative or sustainable. But we didn't want to do that. We wanted to be really intentional and make sure that we do it on every farm. We can point to the results. We do soil testing, Luke and Richard, on all of our farms. And we measure the organic matter and the carbon that's brought back into the soil. And soil health is so important. That's what we think our investors are investing in. And that's what we're trying to restore and build something the way we think was intended to be used and over the longterm. That's great. Man, that's super cool.
Richard Cunningham Yeah, I've got a couple of questions here and they're both a little bit more pointed and maybe you each take one of them. First one is, is there any pushback from the local farmers and these folks you're going into about private equity money coming in? Maybe not land fund in particular, but just generally kind of the concept of folks like yourself who come in as more of an institutional capital partner. That's one. And then two, now I'm putting my investor hat on, my LP hat on, and the folks that kind of partner with land fund. We're in this high interest rate environment where I can go get 4% to 6% risk free in the treasury environment. And from what I am seeing and hearing here is a kind of passive inflation hedge, cash yield plus residual down the road, but there you add on and layer on risk with the illiquidity of partnering with the fund and a long-term process and things of that nature. How do you respond to those objections from investors when they said, hey, I can go get cash yield for far less risk, quote unquote, if you will, even as buttoned up and dialed as y'all's process is. What do both of those look like? Maybe start with kind of the PE money entering into farmland and then the investor seat.
John Farris Yeah, so the P.E. money, I mean, what we've seen is there's a lot of now institutional capital, a lot more institutional capital coming in for farmland, particularly U.S. farmland. But if you look at the macro level in the U.S., it's still less than 5% owned by institutional capital. So there's a long way to go. And then you think about the locals. Yes, You can alienate the farming community really easily if... One, you don't treat the ground right. You don't treat the farmers right. You don't treat the community right. And the thing that we started hearing down in the Mid-South, when we were working in the Mid-South, after about five years, we were hearing from farmers, we really liked those land fund guys and fund partner guys. And I would always ask, elaborate on that, and they would say, well, you all do what you say you're gonna do. And I was like, I don't know another way. Do people do something different than what they say they're gonna do? They were like, yeah, you'd be surprised. the bigger funds sometimes come in and they switch the rules on the farmers and mid crop or they at the closing table, they'll change the price that they're gonna pay when a family's all lined up. But we are the institutional capital with boots on the ground, local farm managers that farmers know. And so we see and it's certainly something that we're aware of, but we think that we'll try to lead by example with the way we treat the farmers, treat the community. and what's very important in our hiring process that we treat them. And sometimes it's not just about squeezing the next nickel out of the farmer, right? Some farmers have had a tough year last year with uncertainty and family uncertainty, and we wanna make sure that we're good partners with them, and sometimes that requires us not trying to maximize returns in the short term, short run, when we know that over the long term that's gonna come back to us the way we treat people. And so that's really important and something that we emphasize, you know, we emphasize to our farm managers, all of our employees is that it's not just about making the next nickel. Now, fortunately we've had great returns and there's lots of reasons that we do it differently. And I'll turn over to Chris and just say, you can indiscriminately buy farmland and yes, you'll make 5% generally around, you know, the U S you can indiscriminately do that. But we do, we're different and we have best in class returns and I'll let Chris take it over from there.
Chris Morris Yeah, and Richard, to answer the question about the rate environment returns, how does farmland compare? You know, you're certainly correct, 10-year yield today is probably around 4.3%, which is different than it was, you know, for much of the past decade. That has changed things on the margin, but just talking about farmland specifically as an asset class, if you go all the way back to World War II, it's not just the cash flow component from leasing out the farms, but also the appreciation of the land. It is a scarce resource that they are not making any more of, right? We're actually losing tillable farmland acres in the United States due to path of development, other issues. We're just losing total farmland while trying to feed more and more people on the planet. So that scarcity, that supply and demand actually increases the value of farmland. So since back to World War II, to finish that thought, the USDA has farmland appreciating at about 5.2% a year. So that's back to the 1940s. In our area of the country specifically, if you look at the past 20 years, the compound annual growth rate has been 6.2%. So if anything, we see it potentially accelerating due to the scarcity, but trying to feed even more people. and not just population-wise, also more protein-rich diets, a more rich protein diet, and then we're talking globally. In the U.S., we're very fortunate to have more than we need, but in much of the world, people don't even have one meal of protein a day. As they move up the GDP per capita scale, it becomes two meals with protein a day. You need even more soybeans and corn to feed the chickens and the pigs and the thousand. So. We see that long-term appreciation is a key part of the return in addition to the cash flow, which typically a farm lease historically is going to generate four to five percent gross cash flow. That's farmland as an asset class. We see it certainly performing differently than a treasury. You mentioned bonds. Farmland has also been referred to as gold with a coupon. So, as inflation goes higher... Commodity prices are denominated in dollars. Commodity prices go up. Our farmers are able to make more money, which means our rents actually increase annually. Whereas a bond, you're getting paid a fixed amount over that 10-year period. So yeah, it's a little different than treasuries, but overall, just a really unique, non-correlated, inflation-hedged asset class.
Luke Roush Yeah, I think that's a good case for the asset class. And I think you guys do it a bit differently than your peer group. One of the things I was really impressed with just going down and seeing y'all's operations there. Uh, you know, and again, I'm just, I'm kind of watching from the sidelines and have followed along with you guys, but I really appreciated the fact that you got boots on the ground, you know, what we've seen repeatedly with other asset managers that we've had on is that proximity to deal flow helps to ensure that you get looks on the right things. And I think Billy... is unique in terms of his local credibility and relational capital and you know maybe speak just one more question then we'll go to wrap but speak to a little bit of how you think about tucking in sort of smaller parcels right so back to kind of this idea of 2,500 acres critical mass how do you think about actually the buy and build approach to these regions where you operate?
John Farris That's a great question because that's a major part of our thesis and how we do things. We now, as I mentioned, have close to 50,000 acres and we can think of those as little pods. We have several, about a half dozen farms which we've managed to piece together that are more than 5,000 acres. We have a 9,000 acre track in Lee County, Arkansas. and what we've focused on in our underwriting. bolting smaller farms onto our larger holdings. And that's called plotage. There's many terms for it. And it is similar to private equity, rolling up a number of small companies together. And that's what we're doing because some of the parts is so much more valuable. When a farmer thinks about, well, I can farm 9,000 acres and keep my labor and my equipment on this one farm, they're certainly willing. to pay more rent than a 500 or 250 acre farm that's 10 miles away. It's just the economics of the unit. They have so much of their capital tied up in their labor and their equipment. And the more they can keep them concentrated and focused and use them and reuse the equipment in the same area, the more profit they're gonna make. So that's been our strategy to build out these regional farms. We'll call them in the Mid-South and. It's really worked. In fact, we're building something that is so coveted by many different institutions that we know that the value of it, the value creation we're doing is so important. And why is that? These pension funds and the Mormon Church is a big buyer in our area and some other folks that you've heard about in the news buy a lot of farmland. They don't want to do the work that we do. They want to come in and buy a 5,000 acre fully improved tract. know, that has a three-year solid rent history. That's what we build. We're building those. And, you know, we're building something that we don't think we recreate. We're long-term holders. We tell our investors that, you know, we intend to hold for the long term. There are opportunities, opportunistic times to sell, you know, but we do that rarely. We're more holders of the ground over the long term and builders and continue to build because that scale and that regional presence is going to be unlike, you know, any other fund that we know of.
Richard Cunningham Guys, this has been a great pod on so many fronts. And I'm so grateful the Faith Driven Investor audience is gonna kind of get to hear this and from the 101 to the going deeper and just all of it. There's so many angles about what to like about what you guys are doing here. And so thank you for taking the time to educate our audience. And let's close here. And this is our favorite question to ask on every FDI pod. Chris, we'll start with you, but man, what's God been teaching you guys and through his word lately? And we'll wrap there with some good wisdom.
Chris Morris Yeah, absolutely. And great question. And for me, over the last several months, I have two little kids and teaching them to pray at night with them before bed. And that's also reinvigorated me to pray more in my own life, right? Sometimes it's going back to the fundamentals and remembering the key elements of letting Jesus into your heart and living in that way. I have a Bible app on my phone actually and This morning, it was from Revelation. Here I am, I stand at the door and knock. And I think for me, it's just remembering to open the door because God wants to help and He's there. So.
Richard Cunningham Come on, back to the fundamentals. John, what about you? Take us home.
John Farris Yes, I've really been thinking in the last few months about control and like having, you know, the elements that may think are in our control or we may try to control really, you know, God's got this. He's got us and He holds us and helps us in so many ways that I, you know, have the tendency to try to want to over control situations, even situations that are in my control. So just taking a step back and realizing that There's a higher power, there's a higher meaning, and you know, he's got a plan for us and what we're doing, both the land fund and the rest of our lives.
Richard Cunningham I cannot tell you how deeply in my bones I feel the control idol, as is my wife who suffers from that idol of mine. But I mean, thank you guys, Chris Morris, John Ferris, Land Fund Partners. Love the work you guys are up to. What a joy to have you on the Faith Driven Investor podcast. For Luke Roush, I'm Richard Cunningham. Thank you all for tuning in and we will catch you next time.
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