Cash Crops With Dividends: Financiers Transforming Strawberries Into Securities –

Cash Crops With Dividends: Financiers Transforming Strawberries Into Securities

By ALEXANDRA STEVENSON July 21, 2014 8:56 pmJuly 22, 2014 2:36 pm

Steve Fessler of Prudential Agricultural Investments, left, shows Thomas S. T. Gimbel the harvest on a farm in Watsonville, Calif.Credit Peter DaSilva for The New York Times

His boots were caked with mud when Thomas S. T. Gimbel, a longtime hedge fund executive, slipped in a strawberry patch. It was the plumpness of a strawberry that had distracted him.

Mr. Gimbel, who once headed the hedge fund division of Credit Suisse, now spends more time discussing crop yields than stock or bond yields.

He is the man on the ground for a group of investors — including New York’s biggest real estate dynasty, two Florida sugar barons and the founder of a multibillion-dollar investment firm — who have been buying up farms across the United States through a real estate investment trust called the American Farmland Company.

Hedge funds are not new to farmland. For nearly a decade they have scoured the corners of the globe for cheap land as food prices have soared, positioning themselves to profit from the growing demand. Hedge funds now have $14 billion invested in farmland, according to the data provider Preqin.

But in the latest twist, a small but growing group of sophisticated investors and bankers are combining crops and the soil they grow in into an asset class that ordinary investors can buy a piece of.

Farmland Partners and the Gladstone Land Corporation, two real estate investment trusts that also own and lease farmland, are already trading on the Nasdaq stock exchange.

For now, American Farmland is a private company, and its founder, D. Dixon Boardman, is pitching the vision to Wall Street. Corn, cotton, lemons, walnuts, avocados: If it grows in the ground and has an attractive income stream, he is peddling it.

“It’s like gold, but better, because there is this cash flow,” Mr. Boardman said. The income stream comes from the rent farmers pay American Farmland and also often includes a share of the revenue from the crops. The company buys farms with permanent crops like almonds and avocados and row crops like cotton and corn.

Down the line, if American Farmland follows the same path as Farmland Partners and Gladstone Land and lists on a public exchange, Mr. Boardman will have another audience to pitch his vision to: ordinary investors.

American Farmland has spent $131 million on 16 farms and more than 11,000 acres of tillable land — the equivalent of 13 Central Parks. It’s a small start, but Mr. Boardman, Mr. Gimbel and their partners have large ambitions.


This strawberry field in Watsonville, Calif., is owned by the American Farmland Company, which has acquired more than 11,000 acres of tillable land.Credit Peter DaSilva for The New York Times

They are competing with investors that have huge war chests. Alaska’s state pension fund, for example, had $485.9 million invested in farmland in 2013. The world’s biggest asset manager, BlackRock, has $180 million of its clients’ money in an agricultural fund, according to Preqin.

The latest wave of interest was generated by the 2008 financial crisis. As global food prices soared and opportunities to buy land abounded, investors like BlackRock, Whitebox Advisors, Ospraie Management and George Soros’s hedge fund, Soros Fund Management, offered their clients ways to invest in the heartland. Investors were wary of the exotic sliced-and-diced securities that had contributed to the crisis, and farmland seemed more tangible.

“It was a major inflection point,” said Philippe de Lapérouse, managing director for the agriculture consulting firm HighQuest Partners. “At that time, investors were looking at farmland as an attractive asset to hold.”

Many individual investors were soon presented with a different challenge: Farmland can be difficult to sell quickly. Some hedge funds stopped offering agriculture investments. But the flow of money from some of the country’s largest pension funds has remained steady.

Wall Street’s foray into farmland may present its own challenges. Shares in Farmland Partners and Gladstone Land have been volatile, indicating investor uncertainty. “It’s a question of whether it is really in the long term something that’s going to appeal to investors,” Mr. de Lapérouse said.

Mr. Boardman and his partners — among them Harrison T. LeFrak, of the LeFrak real estate empire in New York; Alfonso and Pepe Fanjul, the Cuban-American owners of a sugar conglomerate; and William von Mueffling, the founder of Cantillon Asset Management — think it will.

Mr. Gimbel said, “It’s unlike any other asset class.”

American Farmland teamed up with Prudential’s agricultural investment arm, Capital Agricultural Property Services, which runs a farm management and real estate brokerage business. The unit provides loans to farmers and manages farmland, giving American Farmland access to information in an often opaque real estate market.

“I was not about to put on my Wellington boots with my pinstriped suit,” Mr. Boardman said.

American Farmland and other Wall Street firms could soon crowd the heartland.

“I probably have a call from an interested party once a day, someone who has never invested in farmland,” said T. Marc Schober, a partner at Colvin & Company, which connects buyers and sellers of farmland.

Todd H. Kuethe, an assistant professor of land economics at the University of Illinois, said that at agriculture conferences, which were once the domain of farmers and industry insiders, a majority of participants are now institutional investors, venture capitalists and hedge fund managers.

“The share of bank and financial representatives who really want to know what is going on is now surpassing farmers,” Mr. Kuethe said. “I think there are more folks sitting around with money to buy than there is farmland.”

The few metrics that exist have helped lure many. National net farm income, considered a bellwether, is forecast to hit a record high of $130.5 billion for 2013, according to the Economic Research Service of the Department of Agriculture. The figure for 2014 is expected to soften to about $95.8 billion.


Thomas S. T. Gimbel, left, and Steve Fessler among the grapevines at Kimberly Vineyards in Soledad, Calif.Credit Peter DaSilva for The New York Times

The value of farmland in the United States has appreciated on average by 8.4 percent over the last year and 4.7 percent annually since 1990, according to an index from the National Council of Real Estate Investment Fiduciaries. Taking into consideration the income generated by crops, the total average return was 17.4 percent over the last year and 11.9 percent annually since 1990.

But not everyone thinks farmland values will continue to rise endlessly.

“You can certainly overpay for farmland, and if crop prices declined for whatever reason — for example because of some type of natural disaster — there are all sorts of reasons why, all of a sudden, the income stream does not support the price you paid for a piece of land,” said Jeffrey R. Havsy, director of research for the council.

And as the financial world’s interest in farmland grows, some observers have raised concerns about the new landowners’ switching to crops that pay better but that work the soil too hard and use up precious resources like water. In California, for example, a recent move toward nut trees has put pressure on already constrained water resources during a severe drought.

These concerns are likely to increase as more farmland changes hands from farmers to corporations.

But to Mr. de Lapérouse, whose HighQuest Partners started Global AgInvesting, a series of conferences that take place in Dubai, London, New York and Singapore, the current level of interest is just the beginning.

“Less than 1 percent of global farmland is owned by institutional investors,” Mr. de Lapérouse said. “So even if you quintupled that, it would be a major sea change, but it’s still only a little territory.”

A version of this article appears in print on 07/22/2014, on page of the NewYork edition with the headline: Cash Crops With Dividends.

Farmland values keep rising

The 2012 drought that devastated crops and pastures in much of the Upper Midwest didn’t stop the price of farmland from shooting higher, especially in North Dakota.

The average per-acre price of cropland in 2013 in North Dakota soared to $1,910, a whopping 41.5 percent increase from the previous year, according to an annual report issued Aug. 2 by the National Agricultural Statistics Survey, an arm of the U.S. Department of Agriculture.

Nationally, the average per-acre price of cropland rose 13 percent, NASS says.

“I think North Dakota had some catching up to do,” says Dwight Aakre, farm management specialist with the North Dakota State University Extension Service.

Prices for North Dakota cropland had, in past years, risen slower than prices for cropland in many other states, leading to a “catch-up” this year, he notes.

He also notes that much of North Dakota enjoyed good yields in 2012, despite the drought.

Aakre says that while North Dakota cropland values undoubtedly rose sharply in the past year, he was surprised to see the NASS estimate of a 41.5 percent increase.

“That’s a lot. But you don’t argue with USDA. It has the best numbers,” he says.

The report is based on a survey of agricultural producers in the first two weeks of June.

Most other states in the Upper Midwest also saw substantial increases in cropland values in the past year, according to NASS.

Cropland values in South Dakota shot to an average of $3,020 per acre, an increase of 30.2 percent.

The average value of Minnesota cropland rose to $4,850 per acre, 19.8 percent more than a year earlier.

In Montana, the average value of cropland rose 4 percent to $888. The state grows little corn, which experts say has contributed to rising land prices in the Upper Midwest.

Average cropland values rose sharply in 2013 in the drought-hammered Corn Belt. In Iowa, for instance, the average value of cropland increased 17.8 percent to $8,600 per acre, according to the report.

Though drought hurt production, it also caused the price of corn to rise, encouraging farmers to pay more for land, Aakre says.

Low interest rates, which reduce the appeal of competing investments such as CDs, also have contributed to rising land prices, though to a lesser extent than high crop prices, he says.

Now, however, crop prices are slumping, and buying land is becoming less attractive, he says.

“I think land prices have peaked,” Aakre says.

Paying more for pasture

NASS also found substantial increases in pasture prices. Nationally, the average value of pasture rose 4.3 percent to $1,200 per acre. North Dakota’s average pasture value rose 28.6 percent to $630 per acre. In Minnesota, the average pasture value rose 16.7 percent to $1,750 per acre. South Dakota’s average pasture value rose 20.3 percent to $710 per acre.

High crop prices have encouraged some producers to begin raising crops on land that once was pastured. That reduces the supply of pasture and drives up its price, experts say.

The average value of Montana pasture rose 1.8 percent to $580.

NASS includes Montana in the report’s mountain region, which also consists of Arizona, Colorado, Idaho, Nevada, New Mexico, Utah and Wyoming. All the states in the region had small annual increases, or even small decreases, in their average pasture price.

Cash rents rise, too

In a separate report on Aug. 2, NASS released updated state-level statistics for cash rents. Here are average per-acre cash rents for nonirrigated farmland for 2013.

•United States — $125 per acre, up from $115 a year ago.

•North Dakota — $64 per acre, up from $57 per acre a year ago.

•South Dakota — $104, up from $93 per acre last year.

•Minnesota — $177, up from $150 per acre last year.

•Montana — $23.50, up from $23 per acre a year ago.

Strong crop prices in recent years have helped boost cash rents, Aakre says.


Arizona wind farm to produce 500MW, power 175,000 homes | Science! |

Arizona wind farm to produce 500MW, power 175,000 homes
wind farm

Like hydroelectric, geothermal, and other green energy sources, wind does not work everywhere. Wind energy exploits,not a natural resource, but a natural feature, and has very few negative side-effects. The only real problem with wind is its relatively low power output, on the order of 1-3 megawatts per turbine. To generate substantial amounts of power requires significant investment in large scale wind farms — and now BP Wind Energy is doing just that.

Nicely out of the way about 40 miles from Kingman in Mojave County, Arizona, this wind farm is set to produce anywhere from 425 to 500 megawatts of power for the area. That’s enough to power 175,000 homes.

When I write that these wind farms are large, I mean large. With a projected footprint of over 38,000 acres, this technology surpasses even solar in terms of pure ground use. The project was also amended several times to avoid disturbing the nesting areas of the golden eagle — one of wind power’s main environmental impacts is its tendency to turn birds into small, feathery explosions, sucking them in and chopping them up.

This map shows the distribution of turbines over more than 38,000 acres of land.

Dstribution of turbines over more than 38,000 acres of land.

This is all part of President Obama’s pledge to reduce carbon output and increase the production of American-made energy. This serves the dual masters of energy independence and slowing the progress of global climate change. It marks the 46th wind, solar, and geothermal utility-scale project on public lands since 2009.

Wind power has made some significant strides lately, both in terms of increased generation per turbine and increased construction of the turbines themselves. Still, it is just one of a suite of green energy solutions, and by far the most ascendant is solar power. While wind, geothermal, and hydro move forward in terms of efficiency, there is still an upper bound to the amount of energy available; a turbine can only maximally collect the amount of kinetic energy carried by the wind or water which turns it. Solar can only soak up the amount of light energy that falls upon it — and that maxima is much, much higher.

Still, this wind farm marks one of the most significant investments in green energy production, and unlike some similar proposals, it will not encroach closer than a quarter-mile from private property. Set out in the Mojave, turning in obscurity and creating both power and job with a minimal environmental footprint, it’s difficult to come up with too things to complain about.