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Farmland: best-in-class asset

Agriculture.com Staff 01/17/2013 @ 4:25pm

WEST DES MOINES, Iowa (Agriculture.com)--Farmland has a large income return and is an undiscovered asset class, an industry expert told a group of investors Thursday.

Stephen Kenney, vice president of business development at Hancock Agricultural Investment Group, says farmland is a low-risk investment with a strong return.

“Putting farmland into fixed income is a unique play because normally it’s real estate or real assets that make up that income category.”

The leasing investment group owns over 275,000 acres. Most of the land owned is in the U.S, but the company does reach out to Canada and Australia using local profits and their own resources to manage land.

Kenney shares Hancock’s views on farmland investment being basically an unexplored area that has been talked about, but not a whole lot of action undertaken for investing in crops.  

“It’s an undiscovered asset class amongst investors,” Kenney says.

Hancock agriculture invests in more conservative areas, such as the U.S., Canada, and Australia because they are fluently English and have a consistent government. In countries like Brazil, there is uncertainty about whether the structure will exist in a few years.

“We are not in Brazil, with reports showing income return levels of 4% to 5%. You can get that in Illinois. Plus, the political situation is unstable,” Kenney says.

When trying to diversify your investment portfolio, farmland is being proven as a positive asset class.

Kenney reminds investors that farmland is a long-term investment. "You really should consider 10 to 11 years of ownership. It's not a liquid asset class,” said Kenney. “Iowa, it’s a great investment. Anytime is a good time. Ten years from now, 20, or even 50 years,” said Kenney.

Kenney says investing in farmland provides total returns at low-risk levels. It also produces competitive income in low-interest-rate environments.

"Investors can see a 4% to 5% cash return on row-crops. That is a good return on investment vs. any return on a CD at a bank," Kenney says.

When considering a farmland investment portfolio, the best mix is to have a ratio that includes 70% row crops and 30% permanent crops. This is the optimal way to invest, but Kenney suggests that some people would say the best way to invest is 50/50.

Written by Mike McGinnis and April Allen

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