What if we could see daily farmland prices?

What if we could see daily prices for farmland? Well, we kind of can. As mentioned in an earlier post there are two publicly traded farmland REITs focused on US farmland (NASDAQ:LAND and NYSE:FPI). Obviously their share price is determined by things other than the price of the underlying farmland. For example their leverage, management, payout ratio, and a large number of other variables also will impact their share price. But ultimately they are just publicly traded companies that own and lease out farmland.

As mentioned in a previous article, their share prices have wild fluctuations. Through the first 3 weeks of August the share price of LAND is up over 10% and today, it is was down 1.4% on no news and little volume. Did the value of the business change that much over the weekend? If anything, the share price of one of these companies should be less volatile than an individual parcel of farmland because they are diversified across different regions and crops.

While some may argue that the best way to invest in farmland is through a liquid publicly traded company. Disregarding the lack of control over both the investment, management, and management compensation, it may be the very liquidity that can hurt investors due the introduction of a behavioral risk.

The volatility of these investments may scare investors in or out of positions. The famed investor Barton Briggs once wrote an article entitled “Buy a Farm and Get Rich Slowly”. The problem with individual stocks is that people cycle through fear and greed and are often unable to hold a position for long enough to get rich slowly. Sometimes it just makes more sense psychologically to hold a long term investment in a long term structure.