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Chicago Forum: Working capital ‘only starting to dry up’

An examination of global agriculture reveals both encouraging signs of near-term opportunity and large uncertainties about the future, according to panelists at the Agri Investor Forum in Chicago on Wednesday.

 

Speaking during a session entitled The State of the Agriculture Industry, panelists at the Agri Investor Chicago Forum on Wednesday provided a contrasted account of where the asset class stands today.

CoBank vice-president Dan Kowalski noted continued inflows of capital into agriculture from government support, land-based investment and private equity investors.

“We are seeing a little bit more of the deal-making that was going on several years ago, before people got a bit spooked by the financial crisis,” he said. “A little of that is coming back.”

Georgetown University executive in residence Matt McKenna said that the economic recovery from the financial crisis has been uneven, favoring highly populated urban areas over the rural regions of the country. McKenna talked about his efforts, both inside and outside government, to encourage investments in rural agriculture through SBIC funds and by convening events that aim to connect investors with opportunities in the middle of the country.

‘Lower values have not played out’

Addressing US farmland markets, People’s Company president Steve Bruele said that a significant amount of capital has been raised with the expectation of distress in agriculture but the working capital that US farmers had accumulated during years of record-high commodity prices was only now starting to dry up.

“What we’ve seen, at least in the Midwest, is that the lower values have not played out, at least to the degree that a lot of folks thought they would be,” he said. “I think there is a lot of capital on the sidelines anticipating distress, and there is distress, but the real estate values haven’t reacted in the way a lot of us had anticipated.”

In Iowa, for example, Bruere said that of the 632 farms currently for sale, only 16 are 85 percent tillable and highly productive. He added that few of those are being sold on auction, leaving very little opportunity for financial investors.

Venturing overseas

Stiff competition in US farmland markets is thought to have brought some North American investors further afield of late and international markets were also addressed prominently by the panel.

Liz O’Leary, senior managing director and head of agriculture at Macquarie Infrastructure and Real Assets, noted that Australia has become a more attractive destination for US and Canadian investors of late and that her firm aimed to fill demand emanating from the growing middle class of Southeast Asia.

After the consolidation witnessed in the inputs sector in recent years, O’Leary said the midstream sector is now a particular focus for her firm, as primary producers continue to get large enough to want to integrate those assets into their operations.

“As you start to think about the changing supply-chain dynamic, you don’t have to be a rocket scientist to see that the opportunity for scale and consolidation within core primary production is really very real, ” she said.

Beltone Financial Holding chairman Sameh El Torgoman said that government-directed efforts to invest with national food security in mind were driving much of the activity in the Middle Eastern and African regions that are his firm’s focus. El Torgoman also stressed the importance of infrastructure and mentioned Sudan as offering a good opportunity for agricultural investors willing to take on more risk and utilize a holistic approach.

Mining for data

The impact of technology emerged as a theme, as it did across many of the day’s discussions. McKenna said that technology could play a significant role in encouraging rural growth and O’Leary talked about how the transparency that technology provides allows operators to make real-time decisions throughout the production cycle.

Some in the industry, according to Bruere, fear platforms such as AcreValue and Granular because they threaten to upend their business by brokering and managing farmland assets directly. Demonstrating the positive effect of new technology, he added that profitability maps informed by data had helped People’s Company identify the between 5 percent and 15 percent of its acres that were unproductive.

Bruere said that his firm now struggles when working with smaller farmers who are not already equipped to provide yield and fertility data that have quickly become standard.

“If you’re a small operator that can’t provide that, you are becoming pretty difficult to work with,” he said.