“Stewardship” was the word on everyone’s lips at the 2015 Agri Investor Forum in Chicago last week, as the most respected names in farmland investment and management discussed keeping yields, returns and land healthy and productive over decades-long investment periods.
Whether that stewardship comes from owner-operators or tenant farmers depends on the operation, according to Ceres Partners President, Perry Vieth.
“In row crops, land is the value. In permanent crops, the plant is the value,” said Vieth. “I’m not going to rent that [permanent crop] out to farmer Smith and run the risk that he’s going to destroy the crop.”
Vieth added that stewardship isn’t necessarily a trade-off between a buy-and-lease over own-and-operate strategy. He warned of “cowboy tenants” willing to strip nutrients from the soil in order to get a quick boost in yield before moving on to other ventures.
“We source our tenants before we source our land,” said Vieth. “They’re going to be there for 30 years [is the goal].”
Moore & Warner vice-president, Jonah Kolb, said the primacy of farming land for the long haul is one reason investors must have strong knowledge of the land, assets and people they invest in.
“Stewardship isn’t something you can put into a spreadsheet,” he said.
Although the panellists seemed to be in step regarding the importance of maintaining farmland as a generational investment, Summit chief executive Bruce Rastetter and Farmland Partners’ founder Paul Pittman traded barbs over the wisdom of trying to time the farmland real estate cycle in an apparent bubble.
The exchange started when Rastetter recounted a recent spate of early exits from a recent Summit farmland fund when land prices were at their highest.
“We presented to our investors that it was going to be a 10 to 12 year investment for the first fund. When land values doubled on farms that we purchased in that fund, it just made intuitive sense to sell out that fund,” said Rastetter. “I think you have to have shareholders’ interests at heart. When you can get liquidity on those farms, you should do that.”
Pittman immediately interjected.
“The only reason you would do that is to capture the fees as a manager. Where are you going to put the money? You’re going to give up your three or four percent current yield after that capital appreciation and pay 20 percent to the fund manager and then reinvest?” asked Pittman. “This is not a land-flipping asset class. It’s the wrong approach. It’s bad for the farmer, it’s bad for the industry. It’s the opposite of sustainable. I like you a lot but I disagree [with you].”
Rastetter also found himself at odds with Vieth over the current momentum for farmland prices.
“We think rent prices are low. We think they’re at a bottom,” Vieth told the Forum.
Minutes later, Rastetter said that current land prices have a long way to fall in order to catch up to tumbling crop prices.