Now farmland is ‘established’, the battle to define the asset class can begin

In a keynote address launching the two-day Agri Investor Forum in Chicago last week, Justin Ourso, Nuveen’s head of real assets, detailed the development of farmland investment over the past decade and presented the market’s current and future drivers under a heading of: Farmland is an Asset Class…Now What?

After acknowledging a bit of optimism in his view of farmland’s established place among LPs, Ourso asserted that long-running questions about where best to house farmland within institutional portfolios have largely been answered, clearing the way for more substantive discussions of strategy and differentiation.

“There is a general acceptance, at least when we are having conversations with our investors or potential clients, that it’s not around: ‘What is farmland?’ It’s more around how are we doing what we do and how is it going to deliver, versus: ‘Why should we even be interested in investing in farmland?’,” said Ourso.

Though his confirmation of farmland’s established status was presented and received in the spirit of long-term progress, Ourso’s presentation did not stray from addressing the challenges facing farmland investors in the near term.

More interest from a wider variety of investors threatens to continue weighing on US farmland returns, he cautioned. The economic environment that helped catalyze the initial surge of private interest in the sector continues to evolve, influencing LP expectations on fees, returns, ESG and other factors. Though not exclusive to agriculture, rising interest rates and unpredictable trade policy present risks with very specific potential consequences for the sector.

“Long-term thematics are still there. Correlations still very much do matter,” declared Ourso. “But I do think, the actual return you can realize for your client will increasingly be of focus.”

In addition to highlighting the need to focus on providing stable income, the presentation outlined the reasoning for Nuveen’s view of farmland as a global asset class and included Ourso’s description of how diversification has been key in navigating recently choppy agricultural markets.

As focus broadened during the day-and-a-half that followed Nuveen’s keynote, discussions demonstrated both the promise of various markets private ag investors are currently exploring and the striking range of social and political forces Forum participants said must be considered while doing so.

Onstage discussion ranged from examination of prevalent fund structures and a warning to avoid the misalignment that took hold between timber fund managers and their LPs, to divisions of responsibility inherited from agreements between Caveman Bob and Caveman Joe and the possibility of future uprisings brought on by the introduction of robotic labor.

A conference with no panels explicitly devoted to politics or social issues nonetheless found time for assertions that opioid abuse in the US proves the wisdom of Karl Marx’s warnings about separating workers from the means of production and the relevance of the US Navy’s Seventh fleet to Brazilian inspections of American soybean imports.

The imperative for production agriculture to respond to changes in consumer demands emerged as a key theme, alongside continuing uncertainty and disagreement surrounding how exactly to do so and where to divide resulting responsibilities and benefits between landowners and managers. Detailed examinations of nascent markets for water, cannabis and agtech similarly revealed both clear opportunities for investors and the real potential for any such investment to be challenged by clear risks specific to each market.

Unifying these disparate themes was a sense of excitement that comes with working in a sector interacting so directly with many of the most potent social forces at work in the world today.

If, as Ourso suggested, farmland has indeed successfully established itself as an asset class, years ahead will see the focus naturally shift to more clearly defining how that asset class relates to the various other markets discussed at the Agri Investor Forum.