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This episode aired on Bloomberg TV on Jul 10, 2013

Trend Line Yield

Q. Well, today’s term is a little surprise. “Trend line yield” sure sounds like it relates to all the volatility we’ve seen in the bond market lately… but, not so!

A. Nope, it actually relates to another alternative strategy altogether– farmland investing. And it refers to how productive a crop acre is over time. The picture of the trend line over the last 150 years is really interesting…

Q. And the good news is that we happen to have it right here… it sure shows accelerating yields over the years.

A. Yes, in four major epochs of farming. In the good old days, yields were static, as everything was left up to natural pollination. But they took off right after the Dust Bowl years, improving almost a bushel a year, due to the adoption of hybrid corn. Then things took off again in the 50s, thanks to fertilizers, pesticides, and mechanization. Since then, yields have improved about 2 bushels a year.

Q. So overall we’ve gone from about 20 to about 150 bushels a year… and is that projected to continue?

A. Yes, mostly due to continued improvements in the genetics. Monsanto is saying we’ll get to 300 bushels by 2030. The whole thing almost looks like the Old MacDonald version of Moore’s Law.

Q. And so what’s all this mean for farmland investing?

A. It shows you that it’s a lot more than a commodity investment or raw land speculation, as a lot of naïve easterners think. Smart farm management can keep generating higher crop yields, and so greater revenues and per-acre values. In many ways, it’s a lot more dynamic industry than you’d guess… after all, who really thinks about farmland being a technology-focused investment?

Q. But there aren’t so many ways to invest in it, since the ETFs and stocks of companies that hold it aren’t the same as investing directly in the farms.

A. Right, but there are many smaller private partnerships out there with good managers, who take relatively small minimums with relatively short lockups. For a lot of investors, they might be worth some homework.