Tuesday, May 20, 2014

A Higher Yielding Alternative to Corn and Wheat: "Agriculture Investors Develop a Taste for Permanent Crops"

We've highlighted Singapore Investment Fund Temesek's purchase of #2 almond producer Olam and Interest Rate Observer's black walnut buy rec. Here's more, from Institutional Investor:

From apples to pecans, fruits and nuts that grow on trees and vines can deliver higher returns than row crops like corn and wheat. 
Row crops such as wheat and corn have long been a staple of farmland portfolios. But some investors hope to harvest greater rewards by diversifying into the so-called permanent crops: fruits and nuts that grow on trees and vines.

This farmland comes with higher risks. It takes years for a tree or vine to become productive, and consumer tastes can change in the meantime. That’s what happened with Red Delicious apples, notes James McCandless, head of global real estate, farmland, at UBS AgriVest, a division of UBS Global Asset Management. “About 100,000 acres of Red Delicious turned into firewood” because people decided they liked Galas better, says McCandless, whose Hartford, Connecticut–based firm had almost $1 billion invested in farmland as of March.

But the potential returns are higher too. The nut group — almonds, pecans, pistachios and walnuts — is particularly strong thanks to health-conscious consumers and exports to a growing middle class in emerging markets. In California there’s a boom in the conversion of farmland from “low-value annual crops” like wheat, corn and barley to permanent ones, especially nuts and wine grapes, says Karen Klonsky, an outreach specialist in the Department of Agricultural and Resource Economics at the University of California, Davis.

The NCREIF Farmland Index, from the Chicago-based National Council of Real Estate Investment Fiduciaries, has posted a ten-year annualized return of 17.57 percent, including income and land appreciation. But for income, permanent crops rule. At the recent Global AgInvesting conference in New York, Rory Robertson, CEO for horticultural crops with Westchester Group Investment Management, used the NCREIF index to show that these crops’ annualized income has climbed from 13.06 percent to 18.28 percent in the past decade. Income from annual cropland has hovered at about 4 percent....MUCH MORE
See also:
M&A: "Global Agribusiness Set for More Deals"
Trading the California Drought: Almonds and Water