Field Notes: MassPRIM feels timberland benefits; Macquarie gets PFJC commitment; and Paine faces a more costly Costa deal

MassPRIM feels the benefits of timberland; Macquarie gets PFJC commitment; Paine faces a more costly Costa deal; and why farmers and airlines are seeing eye-to-eye. Welcome to Field Notes, the start-of-the-week briefing for our valued subscribers only.

First look

Timber gives MassPRIM spark of light
Timber was the only asset type delivering a positive performance within MassPRIM’s real estate and timberland portfolio in the year to May.

Details of the portfolio’s performance were presented at an early August meeting of the Massachusetts Pension Reserves Investment Management Board‘s Real Estate and Timberland Committee.

In minutes from the May meeting included within August materials provided to Agri Investor, director of real estate Timothy Schlitzer described the portfolio’s 7 percent return amid unique market conditions over the past year as reflecting the diversification and inflation hedging timber provides to the pension.

“The capital markets saw heightened liquidity from industrial buyers and timberland REITS that experienced higher margins as lumber prices increased after the pandemic. At the same time, lumber producers adjusted their strategies to efficiently manage their supply chains by owning forest inputs,” he wrote.

MassPRIM’s 23-property timberland portfolio includes investments managed by Forest Investment Associates and Campbell Global. Regionally, 42.4 percent of its timber investments are located in the US South; 33.2 percent are in the US Northwest and 21.3 percent outside the United States. Over the past fiscal year, the pension has carried out $27 million in dispositions from its timberland portfolio, according to the materials.

Schlitzer’s upbeat analysis of developments within timber markets contrasted with a -1.6 percent return across MassPRIM’s broader commercial real estate portfolio, which is challenged by changes in the sources and costs of debt and equity capital, and questions about the future of office demand.

“Timberland buyers were less sensitive to higher interest rates and low leverage levels typical of the asset class,” he wrote. “Increasing demand from climate mitigation strategies supported higher prices, especially in lower-value timber regions.”

They said it

“It’s hard to predict how people will respond [to the new agreement]. But if history is a guide, farmers generally wait for the best price to sell – so it’s going to be a hard task for the government”

Kilter Rural CEO Cullen Gunn discusses the challenge the Australian federal government will face in trying to buy back up to 450GL of water for the environment, after an agreement was reached to extend the deadline for the Murray-Darling Basin Plan with all concerned states except Victoria.

LP watch

PFJC says yes, MAM
The Pension Fund of Japanese Corporations, a Japanese investor with total assets under management of more than ¥130 billion ($889 million; €823 million), is set to make a commitment of an undisclosed size to the farmland investment platform of Macquarie Asset Management, according to a report.

Speaking to Asian Investor, PFJC chief investment office Yoshisuke Kiguchi said: “We find farmland to be an attractive investment strategy because the sector and the assets play an important role in all economies – and we have no investments in the sector now, so it provides us with further diversification.”

PFJC was particularly attracted to Australia’s farmland sector over other countries, he said, as it was now “more ripe for institutional investments, with increased efficiency and automation.”

Japanese LPs have shown an increasing interest in farmland investment strategies in recent years. Laguna Bay picked up a commitment earlier this year of an undisclosed size from Development Bank of Japan for its second flagship agriculture fund, which is still in market with a target of A$750 million ($481 million; €446 million).


Flying with ethanol
US airlines and farmers have joined forces to lobby Washington to recognize corn ethanol as a sustainable aviation fuel.

Lobbying efforts have been focused on tax credits for aviation fuel established in the Inflation Reduction Act, according to a report in the Financial Times, which are worth $1.25 per gallon for fuels that reduce emissions by at least 50 per cent compared with jet fuel, and up to $1.75 per gallon for further reductions.

Folling the establishment of the Renewable Fuel Standard program in 2005 and the 2007 Energy Independence and Security Act, the US government has mandated blending increasing amounts of ethanol into petrol for transport vehicles.

Despite the program’s goal of increasing the share of non-food components in ethanol production, this has largely failed to materialize. Corn is still the primary feedstock for ethanol, with about 40 percent of US production currently devoted to the market.

With US farmers seeking a new market for their ethanol now that production has plateaued and airlines in need of a sustainable fuel given their 2050 net-zero target, the two industries believe they can help solve each other’s problems.


Paine Schwartz bid faces higher Costa
Costa Group, the major agribusiness listed on the Australian Securities Exchange, postponed the announcement of its H1 2023 results last week and reported a “deterioration in the outlook” for its citrus and tomato crops – throwing a potential takeover by private equity suitor Paine Schwartz Partners into doubt.

The firm estimated it would take a hit in citrus worth approximately A$30 million ($19 million; €18 million), with softening consumer demand for tomatoes also set to affect its full-year result.

PSP launched a bid to acquire 100 percent of Costa earlier this year, making an unsolicited, non-binding indicative offer of A$3.50 per share in May. PSP is still undertaking due diligence and yet to make a binding offer.

The prospect of such an offer eventuating at the previous bid price looks diminished following market reaction to Costa’s most recent announcement.

Shares dipped from their closing price of A$3.32 on August 23, and closed at A$2.96 on August 25 – meaning that PSP’s bid premium has increased dramatically.

Costa told shareholders PSP had been advised of the latest trading conditions and it would provide an update on the transaction in mid-to-late September.

VC fundraising

Enough, a Scottish-Dutch mycoprotein start-up, raised €40 million in a Series C funding round led by led by World Fund and CPT Capital with support from AXA IM Alts, HAL Investments, Onassis Group, Tailored Solutions and Scottish Enterprise.

Bushel, a US-based ag software provider, raised $26 million in a Series C funding round led by The Banc Funds Company with participation from 50 South Capital, The Andersons Inc, Cargill, Germin8, Lewis & Clark AgriFood, The Scoular Company and Conti Ventures.

Highlight, an at-home product testing company for consumer packed goods companies, raised $18 million in Series A funding round led by Acre Venture Partners and HearstLab. The company counts Nestlé, Estée Lauder, P&G and Target among its customer base.

Jellatech, a US biotechnology company developing complex proteins, raised $3.5 million in a seed funding round led by byFounders, with participation from Milano Investment Partners, Joyful VC, Siddhi Capital and Blustein, among others.

Also in the news…

Firestone Pacific Foods brings in Shawn Campbell as CEO
The Agriculture Capital-backed fruit packer and processer moved to replace the retiring Josh Hinerfeld (LinkedIn).

Tyson Foods plans to sell China poultry business
Tyson Foods plans to sell its China poultry business, in the latest case of a multinational firm looking to divest from the country in recent years (Reuters).

BlackRock opposed 93% of E&S proposals globally in 2023 proxy year
US investment giant bemoans ‘continued’ decline of quality of proposals in voting spotlight (Responsible Investor).

SEC’s new private fund rules divide industry players
Much of the debate boils down to the balancing act of more transparency across private funds versus increased expenses that will result from new requirements and their potential ramifications (Buyouts).

China bans all Japanese seafood
Japan’s release of treated radioactive water from the wrecked Fukushima nuclear power plant into the Pacific Ocean prompted China to announce an immediate blanket ban on all seafood imports from Japan (Reuters).

Today’s letter was prepared by Binyamin Ali, Chris Janiec and Daniel Kemp