Illinois Farm Bureau Commodities Conference

Transcription

1 Illinois Farm Bureau Commodities Conference INVESTING IN AMERICA S HEARTLAND Perry Vieth, President & CIO

2 Firm Overview Investment objective Ceres Partners, LLC Best-in-class purchase and management of quality Midwest farmland Create diversified portfolio of farmland Achieve inflation-protected, uncorrelated returns Target farmland with the ability to generate 6-7% current income Ceres Partners, LLC Customized separate accounts tailored to specific income/return objectives Ceres Farms, LLC Commingled investment fund with annual liquidity Open to new investors $20MM in assets under management 99 farms / 23,400+ acres / Average per acre cost of ~$5, tenant partners Farms located in Indiana, Michigan, Illinois & Ohio 2

3 Farmland Investment Favorable Fundamentals Secular Increase in Demand for Grain Commodities Global Demographics Increases Demand for Food Ag production needs to increase by 60% over the next 40 years to meet the rising demand for food, OECD-FAO Ag Outlook Growing Asian Middle Class Demands more Protein lb beef requires 7 lbs grain Environmental Demand for Biofuels Limited Global Supply of Arable Land Global arable land projected to increase less than 5% by 2050, OECD-FAO All additional production will need to come from increased productivity Impact of Globalization U.S. has Comparative Advantage in Agriculture Declining Dollar Stimulates Agricultural Exports Investment Trends Agriculture/Farmland Uncorrelated with Stocks Institutional Investors Shift Assets into Commodities and Hard Assets 3

4 Why Farmland? Persistent Positive Returns Farmland Returns 992 to 20 Current income plus long-term appreciation.3% average annual return *National Council of Real Estate Investment Fiduciaries Farmland Index is a quarterly time series composite of total returns on a large pool of individual agricultural properties held by institutional investors for investment purposes only. 4

5 Source of Gain - Land Appreciation Significant Component of Total Return Chicago Fed reports 45- year average appreciation for 7 th district (IA, IL, IN, MI, WI) is 7.%. (see Table) Source: Seventh District farmland values: percentage change. IA data from 977 State Ann. % change Indiana Illinois Iowa Wisconsin 20 27% 2% 28% 8% 200 3% 4% 22% 8% % 2% 4% 0% % 6% 5% 6% % 7% 23% 4% % 7% 4% 0% % 2% % 6% % 5% % 8% % 8% % 4% % 9% 9% 9% 5 yr Avg. 3.2% 2.0% 6.4%.2% 0 yr Avg..3%.3% 3.8%.3% 20 yr Avg. 9.3% 8.% 9.4% 9.8% 45 yr Avg. 7.4% 6.7% 6.% 7.6% 5

6 Why Farmland? Returns vs. S&P 500 Higher Returns with less Volatility (Jan 992 to March 202) 30.00% 25.00% 20.00% 5.00% 0.00% Average Annual Return: Farmland.3% S&P % Standard Deviation: Farmland 6.5% S&P % 5.00% 0.00% NCREIF Farmland S&P -5.00% -0.00% -5.00% % % *National Council of Real Estate Investment Fiduciaries Farmland Index is a quarterly time series composite of total returns on a large pool of individual agricultural properties held by institutional investors for investment purposes only. 6

7 Why Farmland? Uncorrelated Returns Low correlation with traditional asset classes NCREIF Farm Index vs. Traditional Asset Classes 7

8 Why Farmland? Risk vs. Return High Returns with Lower Risk Farmland s Sharpe ratio exceeds other asset classes R E T U R N RISK *Risk & return data Jan 992 Mar 202 except TIPS and MSCI US REIT start 4/97 and 7/05 respectively 8

9 Why Farmland? Increased Portfolio Efficiency Farmland enhancement to traditional asset allocation Traditional Asset Allocation Asset Allocation with Farmland 40% Long Treasury Bonds 35% 35% Long Treasury Bonds 40% S&P 500 S&P 500 MSCI EAFE 20% MSCI EAFE 5% 5% Farmland 8.50% 8.00% 7.50% 7.00% 6.50% Risk vs. Return Portfolio with Farmland Traditional Summary Statistics Portfolio with Farmland Traditional Portfolio Difference Return 7.99% 7.36% 0.64% Standard Deviation 7.75% 9.09% -.34% Highest Return 23.20% 25.7% -.97% 6.00% 7.50% 8.00% 8.50% 9.00% 9.50% Lowest Return -3.37% -9.43% 6.05% 9

10 Portfolio Construction Core holdings within a diverse farmland portfolio Geographic Diversity Production Diversity Eastern Europe Sub-Saharan Africa South America Australia New Zealand Other North America US Corn Belt Permanent Crops Owner- Operator Model Transformational / Conversion Dairy Livestock Poultry Row crops: Grains & Specialty Vegetables 0

11 Is There a Farmland Bubble? Generally no. but it depends on a farm s purchase price Farm Breakeven Analysis Average Productivity Soils 63bu/ac Rotated Corn High Productivity Soils 96bu/ac Rotated Corn 80 Tillable Acres: Corn % / Soybean % 67% / 33% 67% / 33% Commodity price per bu: Corn / Soybeans $6.00 / $2.25 $6.00 / $2.25 Crop Revenue: Corn $7,000 $4,000 Crop Revenue: Soybeans $36,000 $43,000 Government Payments & Non-Crop Revenue $3,600 $4,500 Total Farm Revenue $57,000 $89,000 Variable Expenses - Corn* $50,000 $52,000 Variable Expenses - Soybeans* $3,000 $3,000 Fixed Expenses excluding Land* $20,000 $2,000 Total Expense $82,000 $85,000 Net Crop Income $74,000 $03,000 Breakeven before labor and land $43 per acre $575 per acre Allowance for farm labor and profit $00 per acre $00 per acre Breakeven funds available for land rent $33 per acre $475 per acre *Source: 202 Purdue Crop Cost & Return Guide. Includes 0% operator efficiency adjustment for variable costs related to operators of over 3,000 acres.

12 Is There a Farmland Bubble? Generally no. but we expect price declines short-term Drought will Impact Land Prices in Stricken Areas Farmers with no or inadequate crop insurance will suffer losses Balance sheets repaired through land sales Neighbors in stressed areas less able to bid high prices Increased inventory and less demand from farmers will suppress prices... short-term Pending Capital Gain Tax Increase will Motivate Landowner Sales Fiscal cliff increases capital gain taxes from 5% to a minimum of 23.8% at year-end Land sale supply will increase in Q4 Expected Price Decline Creates Opportunity for Long-Term Investors 2

13 Land Acquisition Macro Factors Key factors to be analyzed prior to land purchase Assess sovereign risk Seek jurisdictions where land ownership rights are sacrosanct Established legal system in place Avoid unfavorable tax regimes and overly intrusive governments Infrastructure in place Ability to market and deliver crops Availability of inputs Favorable climate Lengthy, warm growing seasons Adequate rainfall Fertile soils 3

14 Land Acquisition - Farm Factors Key factors to be analyzed prior to land purchase Soil & Water Portfolio should consist of a mix of dark, mineral rich soils and better draining lighter soils Sloping ground could lead to soil erosion Water rights and no/low water restrictions Production history Strong crop yield records Competitive rent neighborhood Strong tenants will compete to farm Crop markets nearby Grain elevators and end-users dairies, livestock, poultry, ethanol/biodiesel Environmental evaluation No hazardous materials or track record of pollution 4

15 Partner Identification Achieve Higher Returns Partner with strong tenants Team-up with the most efficient farmers who enhance the value of land Seek well-capitalized tenants that employ the latest technologies Identify vertically-integrated farmers Seek tenants that maximize revenue potential of the farm Avoid old school farmers who pay low rents in order to insure success Successful tenants are the best source of new farmland opportunities 5

16 Tenant Relationships & Scalability Tenant Relationships 25 Current Tenants 0 Pipeline tenants

17 7 Reasons to Invest in Farmland Advantageous risk-adjusted total returns Favorable long-term fundamentals Positive correlation with inflation Low or negative correlations to traditional asset classes Strong and stable income returns Finite supply Transparency of investment Why Invest in Farmland? I d rather have all the farmland in the U.S. than all the world s gold. - Warren Buffett, CNBC 3/2/ In the world that I see, (farm)land is golden. - Jeremy Grantham, Fortune Magazine May 202 7