Farmland investments returned 20.9% in 2013, according to the National Council on Real Estate Investment Fiduciaries (NCREIF).  In their quarterly report on Farmland returns, the index was up most significantly in the fourth quarter of 2013 –  a gain of 9.26%, opposed to a gain of 2.94% in the third quarter.  Fourth quarter investments in farmland are typically highest due to the sales of crops that occurs from production during the year, according to a report in Pensions and Investments.

Farmland returns

Farmland investments returns significant performance

The returns mark the most significant performance of institutional farmland investments since 2006 when the fund delivered 21.2% returns performance.  In 2005 farmland investments delivered 33.9% performance. Making up the performance is a split between land appreciation, which accounted for 11.5% of annual performance, and income, which accounted for 8.7% of performance.

Perhaps the most well known farmland investor is former Scion Capital Group fund manager Michael Burry, whose highly successful credit default SWAP trades were featured in the book “The Big Short.”

“I believe productive agricultural land with water on site will be very valuable in the future,” Burry said in a 2010 Bloomberg interview.  When considering why he likes farmland, Burry said “I’m interested in finding investments that are not just simply going to float up and down with the market.” When considering farmland investing strategy, Burry, who is also invested in gold, says “You have to buy it right, you need to find special situations.”  Burry is also invested in gold because he is concerned that as central banks and governments issue ever growing debt it will devalue their currencies, he said in the report.

How to invest in a fund?

A significant issue to consider when investing in a fund is “the background and expertise of the fund manager,” said Hudson Cashdan, a hedge fund investor who provided seed capital to Farminvest, a fund that invests in farmland from Brazil to the US. “Obviously, understanding the regions, commodity cycles, and the capital expenditures necessary to enhance asset yield is essential but it’s equally important to have a trusted network of local farm asset managers to work with.  Because farm assets are such long duration investments, the best farmers are reluctant to partner with purely financial investors.”  Frank Plessmann, the manager of the Farmvest fund, notes the importance of creating the appropriate partnerships with those who manage the farmland and the property.  “The structure of the relationship is important so as to motivate quality operators yet balance this with the appropriate expected return.  Investing in farmland is a long term proposition,” Plessmann noted, adding that the typical investment duration in their private equity fund is 12 years.

The quarterly report from NCREIF is a “measure of investment performance of a large pool of individual agricultural properties acquired in the private market for investment purposes only. All properties in the Farmland Index have been acquired, at least in part, on behalf of tax-exempt institutional investors – the great majority being pension funds.”