Overview

Agriculture, particularly in the US, is an attractive long-term investment as the global population continues to grow. This growth leads to increasing demand for food products, while also decreasing the amount of farmland per capita.

With nearly 900 million acres of land corresponding to agricultural holdings, the US provides ample investment opportunities.

Historically, farmland has offered competitive returns (about 11% since 1991) according to NCREIF, while also having low correlations with traditional asset classes and high correlation with inflation, providing portfolio diversification and inflation hedging. 

Farmland returns are composed of two major drives: income from operations and land value appreciation. Since 1997, average cropland asset values have risen from approximately $1,250/acre to $4,100/acre - a nearly 70% increase.

Crops

The US produces two main types of crops – row crops and permanent crops. 

Row crops are annual fruits/grains that are grown in rows, including corn, soybeans, wheat, rice, and cotton. Row crops are considered less risky, as crop failures and crop damage only affect income for one year. 

Permanent crops are fruits that regrow each year, including grapes, citrus, and berries. Permanent crops are riskier from an operational view, because price fluctuations are typically greater and more frequent.

Operation Models

There are two types of management models for agriculture – owner-operator and leasing.

1

Owner-operator models involve the independent management of farms, including all operational duties such as tilling, planting, harvesting, and maintenance. This model is more capital-intensive requiring personnel employment and purchasing/maintaining equipment. Additionally, owner-operator models are considered riskier due to the ordinary production and market risks, such as weather, crop failures, price fluctuation, etc.

2

Leasing models allow owners to rent crop land to local farmers who manage the property. Typically, leasing models do not require purchasing and maintaining equipment. Owners receive annual rent payments from the tenant which can be cash, crop share, or a combination depending on risk appetite. 

Attractive Regions

Salm Schulenburg has identified several regions that are believed to provide the best investment opportunities within the US.

Corn Belt The Corn Belt provides about 46% of the world's corn production. It is also a region with high rents, averaging around $200/acre.

Delta The Mississippi River Delta is the largest rice producer in the US, with more than 2 million acres planted annually. Additionally, there is a high proportion of irrigated acres and relatively low land prices.

Südosten – Der Südosten bietet eine Vielzahl von Nutzpflanzen wie beispielsweise Baumwolle, Mais, Sojabohnen und Erdnüsse. Zudem lässt sich hier ein großer Anteil an gut bewässerten Flächen finden mit vergleichsweise niedrigen Bodenpreisen.