Business model

Business model provides capital to farms and returns to customers | Crop

By Jamie Henneman

What will happen to the neighbor’s farm when the farmer dies? It’s a question that’s becoming increasingly common as the average age of the American farmer continues to climb (57 in 2020) and the number of people involved in full-time farming continues to decline ( 1.4%).

Often a neighboring farmer is interested in buying the farm, but access to capital can be a challenge.

A private company, AcreTrader, offers solutions for farmers to access capital through investors. AcreTrader is based in Arkansas but offers farmland investments across the United States. The company started in 2017.

“We are working to provide solutions for farmers who wish to purchase additional land but need access to capital, while providing an attractive option for investors,” said AcreTrader COO Garrott. McClintock.

A farmer interested in purchasing more farmland has the option of purchasing the land with the help of AcreTrader investors who purchase the property in an LLC. Investors, who may include a farmer, then own shares of the LLC. The property is then leased to the farmer who works with an AcreTrader farm manager.

“Our farm managers are from the area where the property is located and over 50% of our managers grew up on a farm or ranch, so they understand agriculture,” McClintock said. “A farmer leasing land from AcreTrader will have the majority of the say in how the crop is grown, while the farm manager ensures there are safeguards on the land as an asset .”

For farmers, this means they can cultivate more land with the option of buying the land even if they don’t have immediate access to all the capital needed to buy the farm or field.

“Our leaseholders have first right of refusal if the property sells,” McClintock explained. “We think it’s very, very important for people to make money and grow their business by working with us.”

Rental terms are worked out with the farmer on a regional basis, with rates set close to current market rates.

“We want to set rates that farmers can afford and we sincerely hope that farmers who work with us early in their careers will still be working with us 20, 30 or 40 years from now,” McClintock said.

AcreTrader also helps ensure land currently in production stays that way, McClintock said.

“Our due diligence and valuation processes revolve around farmland as a productive agricultural asset. While we will always seek the most optimal exit for our investors, our model assumes that farmland will remain farmland. Our investors are particularly interested in the benefits of agricultural land, which has unique qualities that commercial development properties do not share,” he noted.

McClintock said farmland is an increasingly valuable investment because it has been shown to provide consistent returns over time.

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“Land is one of the oldest classes of investment in existence, yielding enormous wealth over generations. We believe farmland in the United States represents an attractive long-term investment while providing significant relative preservation of capital during turbulent economic times,” he said. “With a growing global population and shrinking US farmland, the laws of supply and demand are clearly in favor of investing in farmland. As a result, farmland has consistently outperformed other asset classes over time. »

McClintock noted that the consistent return from farmland investments is very attractive to investors.

“While the value of gold or stock markets can drop more than 40% or 50% in a single year, farmland returns have been positive every year since 1990 (the first year of the index),” he added.

As farmland changes hands in the United States, there have been reports of farmland being bought up by foreign investors. Many fear that non-citizens have the long-term well-being of the earth at heart.

AcreTrader only allows investors who are legal residents of the United States.

Investors must also be accredited, which means individual investors’ net worth must be at least $1 million and have an annual income of $200,000.

Additionally, AcreTrader understands that investors who may be interested in farmland may not have a full understanding of how farming works.

“We consider a big part of our job to be translators between investors and farmers,” he said. “People who invest in and through us really care about the history of the land, but investors who want a say in management bring a lot of it. That’s why we have farm managers to work with farmers and a team of people who work on marketing, content, educational webinars and other resources to help people better understand farming and farming practices. . You can only understand what you have access to and for some people the only farming information they can get is from Netflix.

Also, while investors can own a share of a farming LLC, it doesn’t give them access to ownership.

“Our investors don’t have ownership rights and investors don’t have access to ownership,” McClintock noted. “AcreTrader has the right to manage the property for the LLC and grants access to the farmer who leases the land.”

Joining forces with farmers and investors, McClintock said he was “excited” about what AcreTrader offers.

“What really excites me is seeing how the best practices we use on our AcreTrader properties help the land increase in value and help the farmer make more money,” he said. .

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