HardAssetsInvestor

Mike Norman, anchor, HardAssetsInvestor.com (Norman): Hi everybody, and welcome to HardAssetsInvestor.com. I’m Mike Norman, your host. Well, what about farmland as an investment? We’re going to talk about that today with my guest, Shonda Warner, who is the managing director of Chess Ag Full Harvest Partners. I hope I got that right.

Shonda Warner, managing director, Chess Ag Full Harvest Partners (Warner): That’s correct.

Norman: Thank you very much for coming on the show. So, farmland? It kind of makes a lot of sense if you think about the last several years.

We got a tremendous boom in agricultural commodity prices. And you know, we’ve heard people talk about, “Hey farmland’s a great investment; let’s go into it.” But you’ve put together an actual fund that does just that. Tell me about it.

Warner: Correct. Well, the fund itself is a limited partnership. And under that limited partnership there’s a private REIT, which is quite a tax-efficient way to own farmland. And there’s some hedging companies and holding companies to deal with other assets that don’t neatly fit into the REIT structure.

Norman: So you go out, you actually buy farmland. This is all around the United States.

Warner: All around the United States.

Norman: Then what? You lease it out to farmers, to produce crops on that land?

Warner: Yes.

Norman: And the investors receive a cash flow?

Warner: Yes, they do, every year, a coupon. They clip a coupon just like a bond.

Norman: How does that compare, let’s say, relative to, currently, stocks or bonds? Well, bonds, it must, because it’s like zero percent interest rate, but I mean to stocks?

Warner: One of the great things about agriculture is there’s this huge bucket of data. We’ve got data going back 100 or 150 years, unlike a lot of the recent financial instruments. And so if you look at land prices or agriculture between 1950 and, say, 2008 or 2009, you really break the returns up into two pieces.

One is your current yield. That’s what you get for growing crops every year. This is row crop agriculture we’re talking about; permanent crops, citrus and things are a little bit different. But you’ve got a current cash flow, and you’ve got a long-term capital appreciation. And in the 39 most popular agriculture states in the United States, what that looks like historically is about 4 or 5 percent is current cash flow. And 6 percent or so has come from capital appreciation. And that’s between 1950 and 2009.

Norman: So 10 percent total return?

Warner: Yes, 10, 11 percent total return.

Norman: That’s good. That beats the average for stocks, which I think is about 8 percent historically.

Warner: Yes, that’s correct. But it’s just not a liquid asset. It’s not been very popular. There aren’t newspapers dedicated to it on a daily basis.