Agri Investor Forum 2016: Farmland’s barriers to entry

The heavy concentration of ownership within local markets is among the factors making it difficult for investors to access opportunities, panelists said

US farmland’s longstanding structure of family businesses and local buyers is a deterrent to financialisation, panellists argued at the Agri Investor Forum in Chicago last week.

The sector overall is “grossly undercapitalised” and could benefit greatly from disciplined use of capital, noted Detlef Schoen of Aqueduct Investment Partners.

But the heavy concentration of ownership within local markets, slow turnover of land and the sheer scale of the assets are making it difficult for investors to access opportunities, said Bruce Sherrick, a professor of Agricultural and Consumer Economics at the University of Illinois.

The US’s asset base in agriculture has a cumulative value of $3 trillion, with 80 percent coming in the form of farmland, Sherrick noted, describing the industry as “fairly high alpha, very low beta, negatively correlated with financials, positively correlated with inflation”.

“That’s a party that everyone wants to be at,” Sherrick said. “The problem is, getting access to it is still pretty complicated.”

Demonstrating the concept of slow turnover, Iowa University assistant professor Wendong Zhang presented farmland value and ownership data derived from the Iowa Land Value Survey, stretching back to 1941.

Zhang argued that many farmers in the region anticipate leaving their land to family members; and he demonstrated that existing farmers remain the dominant buyers in the US Corn Belt, meaning that selling land to neighbouring farmers is often a second choice for farmers – after next of kin.

However, many in the industry are highlighting how the ageing farming population also presents an enormous opportunity for private equity investors who can offer US farmers an alternative – and flexible – exit strategy.

Peoples Company land investment specialist Chris Soules said the key to capitalising on this is building relationships with bankers and the older population in local markets, scooping up “low-hanging fruit” and leasing out land to new operators who can implement the latest techniques.