Pinnacle Asset Management, a New York-headquartered alternatives firm focused on commodities, has raised $25 million for a cattle-focused investment vehicle.
The vehicle is named Pinnacle Arcadia Cattle Partners III and raised the capital from a single investor, according to a regulatory filing shown last week.
In January, Pinnacle acquired Five Rivers Cattle Feeding, the cattle feeding unit of Brazilian meatpacker JBS’s American arm, for approximately $200 million. Pinnacle joined Oklahoma City-based private cattle feeding operator Arcadia Asset Management as its operating partner and Ospraie Management, an investment management firm specializing in basic industry and commodity markets, as a strategic partner for the transaction.
“We have a long history of working together and have great respect for both partners’ expertise in physical commodities,” Ospraie president Jason Mraz said then.
According to regulatory filings shown in January, Pinnacle raised $137.5 million from five investors committing at least $1 million to Pinnacle Arcadia Cattle Partners I, a previous iteration of the vehicle referenced last week. A separate filing on the same day in January revealed an additional $65 million had been committed by a single investor to a distinct, related vehicle called Pinnacle Arcadia Cattle Partners II.
Ospraie and Pinnacle declined to comment and Arcadia had not replied to a request for comment at the time of publication.
A market source told Agri Investor that, according to a family office that had previously hired Ospraie for agricultural investments, the firm used to avoid cattle investments to reduce its disease-related risk.
“Pretty clearly, management has shifted on that,” the source added. “Generally, most agriculture investors have avoided livestock, other than the exceptions to the rule like Teays River. Now, Ospraie being involved is an indication that there is a comfort level building for getting back in.”
The source, which acknowledged having no direct knowledge of the matter, speculated that the additional $25 million Pinnacle has raised for Pinnacle Arcadia Cattle Partners III could possibly be intended for facility upgrades, expansion or the purchase of cattle related to the Five Rivers transaction.
David Nicola, founder of pasture-based cattle producer Blackdirt Farms, told Agri Investor that livestock investors previously focused only on traditional feedlot cattle have recently begun exploring opportunities to invest in natural cattle.
“Though the will of the producers who have tried to do it over the past 10 years have been destroyed, now, all of a sudden, many, many businesses are seeking to either start brands, or add to their brands, either a grass-fed or pasture-based cattle or beef offering,” Nicola explained. “This includes some very large meat companies, who are hunting around and figuring out if they can start a program or who they would want to work with.”
Nicola said that, while many farmland investors have traditionally been reluctant to move into cattle due to the need for infrastructure investments, he expects that will change in the future.
“There is natural integration with farmland funds. Their comfort level with cattle is going to be slower than the family offices and high-net-worth individuals, but they are going to get there,” Nicola predicted. “Right now, we can pay much better rates of return on a lease than a commodity farmer because the amount of money we can make on a per-acre basis is far and above what a commodity producer can make growing corn, peanuts or cotton.”
In general, Nicola said, a feedlot cattle operation aims to make between $75 and $150 per head after investing about $1,000 in each calf and between roughly $500 and $600 on feed before sale, often financed through debt.
“It’s a low-margin, very, very high-leverage system, in which, if you do it correctly, you can make a great return,” he said. “With a feedlot, its systematic; it’s a little bit more like a highly leveraged real estate business that has potentially low margins but can make a good ROI as a result of that systematized version.”