Group Unleashes $300 Million Ag Investment Fund
Based on the latest agricultural news headlines, the sector may not seem like one that would be attracting investment.
But that’s not the sentiment at Alden-Iowa based Summit Agricultural Group.
Recently, the investment and farm management group announced a $300 million fund, named Summit Ag Opportunities I, LLC, to make investments in companies in agriculture or agribusiness primarily focused in the Midwest.
Summit Group utilizes six different funds to operate in the U.S. and Brazil. In the U.S., it operates a row-crop and livestock business in north-central Iowa and an asset management business connecting investors in agriculture. In Brazil, the group operates two funds that invest in farmland and the other operates a corn-based ethanol plant.
So, this new venture will be the company’s seventh fund and includes $300 million in capital.
Despite net farm income continuing to drop, commodities prices remaining below profitability, and farmland off its highs, Justin Kirchhoff, Summit Group’s managing director and head of private Equity, says the long-term picture of agriculture positions the Midwest as a great place to deploy capital.
“More specifically, transitional ownership of ag businesses is occurring. So, we want to be there as a partner for those businesses passing ownership from one generation to the other,” Kirchhoff says. Some of these businesses may not have a transitional plan from an ownership perspective.”
Kirchhoff says the new fund can help those businesses continue their legacy and open up doors and opportunities within the group’s connections in agriculture and finance that may not have been otherwise available.
“We’re looking up and down the ag supply chain for investment. Anywhere from ag input businesses to distribution and logistics,” Kirchhoff says.
It could include ag services, processing, and ag input operations. The funds will be used to invest in anything except production farmland, he says.
“Although the headlines focus on row-crop production and net farm income, I think if you look more broadly, other sectors of agriculture are doing well. Some businesses benefit from low commodities prices,” Kirchhoff says.
For example, the beef processing industry is doing well.
“If you look at profitability in that industry, it’s going to be at multiple-year highs for this calendar year,” he says.
With this fund, Summit is looking to take between 51% and 100% ownership of companies that it invests into.
The fund will operate for 10 years. Summit will deploy capital over a three-year period and then hold the investment for the remaining time frame.
“If you look at investment in agriculture, it’s an underrepresented sector of the investment world.
While the agricultural sector represents 5% of the total U.S. economy, it represents only 2% of the investment activity of financial firms.