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Farmland: An Increasingly Popular Alternative Investment

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A new report from Prequin found that more investors are buying agricultural/farmland assets to diversfy portfolios and profit from the growing global demand for food

“Buy land, they’re not making it anymore.”

Mark Twain’s advice isn’t lost on the growing number of institutional investors scouring the earth for new opportunities.  According to a new study by Preqin, these investors “seek to diversify their portfolios and position themselves to take advantage of growing demand for food arising from global population growth and increased consumption by the emerging middle classes in developing countries.

They’re investing in farmland, agricultural business and AgTech (agricultural technology) as a way to gain exposure to these demographic changes.

The Prequin report, released in mid-September, found that:

  • $22.2 billion was invested in agriculture/farmland- focused private equity funds between 2006 and 2015
  • 90% of investors in agriculture/farmland are open to landowner-focused opportunities
  • 67% of investors with a preference for ag/farmland funds are interested in investing in AgTech

Prequin, a data and intelligence company focusing on alternative investments, also found that assets in ag/farmland funds have been increasing steadily, from 18 unlisted funds with $1.6 billion in assets in 2013 to 17 funds with a record $4 billion raised in 2014. In 2015 10 funds raised $3.9 billion.

Granted, compared to other sectors such as the $2 trillion REITs market, these funds comprise a small arena, but there are fundamentals that boost the category’s attraction.

A Morningstar report noted that by 2050 the world’s population will grow to 9.7 billion from 7.4 billion, and mainly in emerging markets.

The report on the VanEck Vectors Agribusiness ETF (MOO) states, “Although weather can have an unpredictable impact on supply and prices of agricultural commodities in the short run, long-run demographic shifts are favorable for agricultural industry. Global population growth and increasing meat consumption in emerging markets are sustainable trends that should increase the demand for food during the next few decades.”

To date, most of the ag/farmland funds are directed toward North America. For example, of the 77 funds closed to new investment since 2011, 25 are primarily focused on North America and together they have raised $5.7 billion or 35% of the total capital.

Seven funds are diversified and multiregional and have raised $4.4 billion. The largest focus outside North America is not surprisingly Asia, with 13 closed funds holding $1.8 billion in assets, and Australasia, with seven funds having a total $1.2 billion in assets.  (Australasia is comprised of Australia, New Zealand, New Guinea and neighboring islands in the Pacific.) Europe is the least focused area of investment, having only three funds worth $300 million.

A new report from Prequin found that more investors are buying agricultural/farmland assets to diversfy portfolios and profit from the growing global demand for food

The largest of these unlisted funds is the TIAA-CREF Global Agriculture II fund, which has $3 billion in assets, while its older affiliate has $2 billion. And while the agriculture/farmland slice of the natural resource pie is much smaller than that of energy funds – the unrealized value for energy funds is $188.4 billion vs. 14.5 billion for agriculture/farmland and $13.8 billion for timberland funds —  it’s an area with some promising returns.

For example, the Ag Real Value Fund, covering the U.S., has $478 million in assets and an internal rate of return (IRR) of 15.6%, while the Black River Capital Partners Fund (FOOD), covering emerging markets, has $455 million and a net IRR of 9%. The VanEck (MOO) ETF, which invests in global agricultural stocks, is up just over 5.5% this year after a loss of almost 9% loss in 2015. One of its best years was 2010, when it returned 23%.

Of the 2,000 investors surveyed in the Prequin study, 88% preferred energy among natural resource sectors, while 26% also expressed a high preference for agriculture/farmland strategies. Of that 26%, one-fifth were public pension funds, 14%  endowments, 12% foundations and 12% private sector pension funds.  Most of these invest in agriculture/farmland as part of their real assets strategy.

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10 Comments on "Farmland: An Increasingly Popular Alternative Investment"

  1. Anonymous on Mon, 26th Sep 2016 6:24 pm 

    Q: Is there any such thing as non-contaminated farmland in North America anymore? Of any size I mean. Since most soil, at least that worked by uS GMO frankenfood corps, is biologically dead, or inert, what are you buying exactly? A medium that grows nothing unless bombarded non-stop with chemicals and petroleum? When oil begins to flow less freely as it does now, and all that dead soil wont grow much in the absence of its required daily chemical saturation bombing, what will all that land be worth then?

  2. Apneaman on Mon, 26th Sep 2016 7:05 pm 

    “institutional investors scouring the earth for new opportunities”

    Sounds like all the Boomer pension funds. Nobody gives a shit about anything except MORE. They are also investing in water privatization schemes. Both will pay off for a time but then the tipping point will be reached and all hell will break loose.

  3. Davy on Mon, 26th Sep 2016 7:15 pm 

    I am working on buying 80 acres as I type. My growing goat herd needs some space.

  4. Boat on Mon, 26th Sep 2016 7:56 pm 

    I am buying meat at the store for $2.00 lb and just sold a cow for $6.00 per lb. Guessing around 450 lbs. Only in America.

  5. Northwest Resident on Mon, 26th Sep 2016 8:15 pm 

    Davy — 80 MORE acres!? Shooting for title of “land baron”? I know, those goats eat a lot.

    I harvested about six gallons of honey this year. Looks like another 5+ gallons of high protein/nutrition maze once it is all dried and shelled. I’m eating cornbread made from my own ground cornmeal and other ingredients right now, along with some potato soup made with my own potatoes, onions, carrots and assorted spices. I’ve got my system down, and I am sure that just my little 1/16th acre patch of 1200 sq feet raised planter growing space can produce enough food to keep me and several others well fed all year long. In style!

    I’ve got a nice 80 acre patch of forested / grasslands mix with a year round creek going through it right behind my house. Next to that are hazelnut and apple orchards. Needless to say, I’ve got contingency plans for “annexing” all of that. Post collapse, once the dust settles, I’ve got room to grow!

  6. makati1 on Mon, 26th Sep 2016 8:31 pm 

    If it is more than you personally can plant and tend, it will become useless when the SHTF. Large animals will be a thing of the past. Chickens may be the only meat that will still be viable to grow. What good is a horse, if it does not have a plow to pull? Beef will be a word in an old dictionary. Suddenly what were called ‘varmints’ may be Sunday dinner. Possum, groundhog, raccoon, etc. If it is edible, it will be hunted to death. Snakes and monitor lizards are never wasted when they are caught here. I also understand that field mice were a delicacy in ancient Rome. lol

  7. Tagio on Mon, 26th Sep 2016 9:53 pm 

    Pretty funny/misgided if they are buying large tracts of farmland for INDUSTRIAL farming. People who want to be rentiers are the bane of our existence.

  8. Lawfish1964 on Tue, 27th Sep 2016 9:40 am 

    I agree with Anonymous. Today’s “farmland” will be the worst place to attempt to grow food once the oil becomes scarce. That land is sterile, nothing more than a medium used to convert petroleum into food.

    I picked up 30 acres of hardwoods from a bank, and it has a large creek running through it, but I can’t make up my mind what to do with it. I’d like to harvest the timber, then plant fruit trees and have a real orchard. I suppose here in north Fla, pecans are a great cash crop, but I’d like to have a variety, perhaps peaches, pears and some citrus.

  9. Davy on Tue, 27th Sep 2016 10:01 am 

    NR, keep in mind land here is around $1500 acre which is considered low by national standards. I am farming on family land now. I am 1/6 of that equation. I am the only one down here full time on 400 acres. The acreage I am getting borders this family land. I am positioning myself with lthis 80 acres next to the family land so I can acquire my 1/6 bordering the 80 acres. Families have a tendency to break up after a few generations. I am positioning myself for this possibility.

  10. Davy on Tue, 27th Sep 2016 10:07 am 

    Makati!, large animals are going to be vital to the future if there is a future. I agree in your P’s they will be gone when 100MIL get desperate for food on a smallish group of ecologically destroyed Islands.

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