Financial Advisor magazine wrote a great article about Farmland LP at http://www.fa-mag.com/fa-news/11758-organic-growth.html.
FA reaches an important audience of over 90,000 advisors and investors who control over $10 trillion in client assets. According to their client survey, the advisors recommended REITs to 52% of their clients, Alternative Investments to 42% of their clients, and Socially Responsible Investments to 20% of their clients. These advisors play an important role in helping their clients get outside of the over-crowded box of the stock and bond markets, and we’re grateful that FA took the time and effort to write over 1,400 words on us. FA did a great job in communicating how owning farmland generates both land appreciation and cash flow, and how our farmland management practices enhance returns by reducing costs, increasing revenue, and adding diversification vs. chemical-dependent commodity cropping systems. From the article:
“…there has been less attention paid to the escalating cost of inputs that have become de rigueur in conventional agriculture—fertilizer, herbicides, pesticides, GMOs and fuel. According to the USDA’s Economic Research Service, yields increased 30% between l989 and 2009. Meanwhile, the cost of inputs tripled during the same 20-year period.
According to Richard Heinberg, senior fellow at the Post Carbon Institute (PCI), agriculture accounts for 16% of the U.S. annual energy budget—more than any other industry.”
It continues (with possibly the first use of the word “dung” in FA’s publishing history):
Farmland LP is taking that to the next level by incorporating closed-loop systems on diversified, multi-crop farms. The process begins by planting pasture for livestock, which will graze and restore the fertility of the land by depositing their dung.
“Animals are an essential and extraordinary part of maximizing soil fertility and the production of food from an acre of land,” Wichner says. “Rotating land with livestock is a wonderful way to enhance sustainability and investment returns.”
The model is based upon a rotation of specialist farmers around the property at management’s behest. At the firm’s Fern Road Farm in Oregon’s Willamette Valley near Corvallis, for example, there is a sheep farmer, a chicken and hog farmer, and a vegetable farmer.
The farmers lease the land in a profit-sharing arrangement with the firm and its investors, which reduces their risk and lease payments in the event of bad weather. By having higher value crops, more intensive and diverse use of the land, and the synergies of rotating livestock and crops, Wichner estimates that the revenue per acre will be two to three times higher than it would be with commodity crops alone [cw: sentence corrected].
“We don’t grow just one giant mono-crop,” Wichner says, explaining why the fund’s volatility will be lower than that for conventional cropland. “We get a greater return than commodity cropland, and it has very low correlation to the cost of inputs used in conventional agriculture. But our system for growing is more complex. It’s more management intensive, and it takes more intellectual and physical work.”
They end with a strong big-picture finish:
Wichner’s [cw: and of course my partner Jason Bradford’s] model is intriguing because it attempts to solve a host of problems at once—rising oil prices, people’s health, soil restoration and the lack of affordable land for many farmers. At the same time, he’s found a way to scale what had traditionally been a small-scale, diversified farm model into something that’s potentially attractive to investors.
Successful investors and good farmers are more alike than one might think: both know the importance of long-term sustainable investments; both understand the benefits of having both their financial and intellectual capital work for them; and they both benefit from diversification, whether in their stock or crop portfolios. Financial Advisor magazine is helping show Wall Street that sustainable investments are good investments.