| Scheduling note: Money Distilled is taking a long weekend — your next newsletter will arrive on Tuesday 26th November. See you then! Dear reader: Money Distilled is now behind the Bloomberg paywall. Existing readers will continue to get it for free until December 11th, but after that, it’ll only be available to Bloomberg.com subscribers (and terminal users, of course). So sign up if you haven’t already at the bonus rate outlined in the box above. You get far more than just this newsletter . You get access to the entire Bloomberg website with its unrivalled global coverage of markets across the world , including my colleague Merryn’s brand new newsletter. If you want to be informed, rather than told what to think — a rare commodity these days — sign up now. I thought we’d return to farming today, because something’s been bugging me, and I suspect it might have been bugging you too. Farmers would be upset about the inheritance tax (IHT) changes (more on those here) regardless — it’s only natural to get annoyed when a new tax is imposed on you, and this one is particularly emotive. However, the key problem we keep hearing about is that while working farmers are asset rich (the land is worth a lot), they are cash poor (farming doesn’t generate much profit). If, like me, you’re an office-skulking finance worker whose finely-manicured, occasionally-perfumed townie hands have ne’er wielded a tool heftier than a keyboard, you might be wondering — if the return is so bad, why is the asset worth so much? For example, there’s a couple of young farmers on TikTok talking about the theoretical yield on something called Clarkson’s farm. They reckon the farm makes a profit of about £180,000 on 1,000 acres worth about £10,000 an acre. So that’s a yield of 1.8%. The obvious question for the aforementioned office-skulking City boy is this — how on earth does any business asset trade on a yield of 1.8% when the risk-free rate (the 10-year gilt in this case — we can have a laugh about that word “risk” another time) is sitting at above 4.5%? Why not flog the land off and stick the money in gilts and stop having to get up at 4am in the morning? Now the chaps in the video hardly go through the figures with a fine toothcomb, but the sorts of yields they’re talking about come up again and again in this discussion, so I have little doubt that they’re in the right ballpark even if an accountant might quibble with the exact decimal pointage. And when you look at farmland prices in the last 20 years, they really have shot up, as the chart below, courtesy of upmarket estate agency Knight Frank, shows. (Prices are in hectares — a hectare is about 2.5 acres). The most recent bull run has seen prices rise by about a third since the start of 2021, though according to the latest market report from the agency, that stalled ahead of the budget in October. Over five years, farmland has outperformed both prime and non-prime UK residential property, though both global equities and gold have done better. (That said, this is just capital growth rather than total return). So again — what’s driven farm prices so high? I had a quick chat with Will Matthews who is Head of Farms and Estates over at Knight Frank, and in his view, there is no standout factor. The upshot is that farmland is a desirable asset in and of itself. Farmers are extremely attached to their land for reasons that go far beyond the financial. Imagine that it’s not just your family’s business, but that you also live in the place, grew up in the place, and maybe also feel the weight of a few past generations looking down at you and a future generation looking up to you — it’s a lot tougher to shrug and swap that for a portfolio of corporate bonds. Partly as a result, farmland doesn’t come up for sale that often. According to research from Andrew Teanby at estate agents Savills, the volume of publicly-marketed acres across the UK has roughly halved from a peak in the late 1990s. Meanwhile, pressures on land — and the incentives to buy it — have only increased over the last few decades. Population growth and potential for building is an obvious one. Then there’s the desire for land on which to build renewable energy sources, plus land to be used for general environmental protection and conservation uses. It boils down to Mark Twain’s argument: “buy land, they’re not making any more of it.” Considered this way, farmland has the characteristics of a trophy or luxury asset. It’s unique and non-fungible (every acre is a little bit different). Rich people who aren’t farmers want to own it for the same reason they want to own classic cars or wine or art. It’s not just the inheritance tax breaks — it’s an asset you can take pleasure in, and ownership of it has an element of the peacock’s tail (“Look at me, I’m so rich I can afford to own an asset that generates a sub-2% yield”). Yet it also has some of the characteristics of gold. It’s not portable and it’s not fungible, but it is scarce, its value almost certainly won’t go to zero and will probably at least keep up with inflation, and it doesn’t carry any counterparty risk (if you own the land, you own it). Note that farmland did surprisingly well in the wake of the 2008 financial crisis, precisely for this reason. Neither trophy assets nor gold typically generate any income and indeed, they usually incur a carrying cost. So from that point of view, the tolerance for pitiful yields on farmland starts to make sense. On top of this of course, you have any number of incentives involving subsidy regimes (on which I’m afraid I’m not sufficiently knowledgeable to tell you anything useful), and also an element of a tie-in with the commodities cycle. In short, it’s an interesting asset class in and of itself. I certainly don’t think you need to have an allocation to it in your own portfolio, but if you’ve been pondering why farmers are asset rich and cash poor, I think this hopefully explains it. As far as the future goes — I suspect the increase in interest rates over the past couple of years will have a greater impact on pricing than changes to the IHT regime. But given that farmland is typically the sort of thing that is bought either by the wealthy or to expand an existing working farm, it’ll probably have a closer correlation with the wider world of luxury assets than it does with say, other forms of property. Send any feedback, opinions or questions to jstepek2@bloomberg.net and I’ll print the best. If you were forwarded this email by a friend or colleague, subscribe here to get your own copy. - AI advances are slowing down, for now at least. That’s good news for companies who are still working out how best to make use of the technology, says Parmy Olson.
 What does the future hold for the US? Photographer: Al Drago/Bloomberg Looking at wider markets — the FTSE 100 is up 0.3% at around 8,110. The FTSE 250 is down 0.2% at 20,200. The 10-year gilt yield is sitting at 4.45%, broadly flat on the day, as are its French, German and US equivalents. Gold is up 0.5% at $2,660 an ounce, and oil (as measured by Brent crude) is up about 1.9% to $74.20 a barrel. Bitcoin is up 3.8% at $98,010 per coin, while Ethereum is up 4.3% at $3,210. The pound is down 0.1% against the US dollar at $1.263, and is down 0.1% against the euro at €1.201. Follow UK Markets Today for up-to-the-minute news and analysis that move markets. | 
