Commentary

US farmland values not in a bubble, says TIAA-CREF

Strong demand and less leverage means there is no bubble in North American farmland values, according to John Goodreds, senior director, natural resources.

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Farmland values are not in a bubble, John Goodreds, senior director, natural resources at TIAA-CREF told guests at the annual Equilibrium Capital annual forum in California on Tuesday.

His comments come amid growing comment from the agri investment community that farmland values across the US are inflated.

“We don’t think there’s a farmland bubble for a variety of reasons,” said Goodreds. “One is the very strong demand and two, the level of leverage on the average farm balance sheet is substantially less than it was in the 1980s when you really saw the last decline in farmland values.”

But Goodreds admitted that various parts of the US were less visible in TIAA-CREF’s pipeline than they once were, including the Midwest where prices “have gotten very full”.

“We are still seeing lots of opportunities in permanent crops in California and potentially elsewhere. By and large farmland ought to be in the 8 to 12 percent return category and we think that thesis is still intact, but there are certain areas where we will be more active and others less active,” he said.

Goodreds also emphasised the importance of diversifying the portfolio across crop types and weather systems to mitigate any volatility in pricing; TIAA-CREF pursues a buy-and-lease investment model for the most part, but it has started to dabble in own-and-operate investments.

TIAA-CREF’s agribusiness private equity portfolio is also growing and now stands at around $600 million; when Goodreds joined the institution in 2010 the portfolio only had exposure to 10 to 15 agribusiness investments. But building this private equity portfolio is much harder to scale than the well-established farmland portfolio, he told Agri Investor on the forum’s sidelines, because each investment opportunity requires a lot of due diligence depending on its sector and operations base.

Responding to a question from the audience about where he sees attractive investment opportunities within agriculture and real assets, Goodreds pointed to the growing importance of agriculture technology, particularly on the data side.