Reuters | 17 March 2010
by Carey Gillam
Investors are growing more bullish on U.S. farmland as softness in some sectors spurs increased competition for buying quality acres, a top U.S. agricultural investing group said on Wednesday.
New hedge fund players were among a range of large and small investment groups participating in farmland dealings, Jeff Conrad, president of Hancock Agricultural Investment Group, told the Reuters Food and Agriculture Summit in Chicago.
"There is more competition," said Conrad, who oversees Hancock's $1.2 billion of agricultural investments in the United States, Australia and Canada. "We are definitely seeing more deal flow."
Notably, capital flow is increasing from overseas, in particular from Europe, Asia and the Middle East, Conrad said.
The market action is accelerating to the level where Conrad sees portfolio trading opportunities and potential development of a real estate investment trust.
The interest in buying farmland comes amid a decline in commodity prices tied in part to a global glut of key crops like corn and soybeans and diminished corn-based ethanol demand.
Conrad said the Hancock group's return was down last year to 7.6 percent from 18 percent in 2008 as commodity prices fell and land values flattened. He is cautiously projecting continued single digit returns again for 2010.
Still, the group's client base, which is made up of pension funds, large taxable investors and funds of funds, continues to grow, Conrad said.
"Our investors are very long-term oriented," Conrad said. "Typical farmland provides very attractive current income that is what institutional investors are looking for."
OPPORTUNITIES IN SOFT SECTORS
Conrad said his investment group was finding some opportunities where previous investors had bought land intending to convert it to commercial property but were stymied as credit dried up and the economy swooned.
The group is also finding good values in farmland in Idaho were the dairy industry is struggling, and remains very active in the U.S. Midwest, the heart of corn and soybean production.
As well, the group is looking to deepen its presence in the California vineyard sector, another area that has been struggling through the recession due to falling demand for wine.
"There has been a glut of wine for the last few years so that is a sector we like," Conrad said.
The Hancock group is a unit of the Hancock Natural Resource Group, an indirect wholly-owned subsidiary of Manulife Financial Corporation (MFC.TO) (MFC.N). In addition to the row crops and wine, Hancock is heavily invested in specialty crops such as almonds, walnuts, cranberries, apples, pistachios and macadamia nuts.
Cranberries and pistachios provided double-digit returns in 2009 while apples and almonds did poorly, according to Conrad. Cranberries appear to be softening, however, with more supply building up inventories amid limited exports.
One key area for investing now is a rush to lease or buy water rights, Conrad said. Water is a key resource for agricultural production and scarcity concerns coupled with a growing world population makes water control critical.
"That pattern is just going to become more and more common," he said.
The United States and its technologically advanced farming systems do not offer the same high rates of potential return as some investors are seeking in Brazil and other countries, Conrad said.
But the more mature market does offer solid long-term opportunities and Hancock has no plans to extend its investments outside the United States, Australia and Canada.
"Our plan is to build out the countries we're in right now," he said.
(Reporting by Carey Gillam; Editing by Tim Dobbyn)
