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Farmland Wires vs. Interest Rates
Dollars (S) Per Mn
$2.800
$2.600
52.400
$2,200
52.000
$1.800
81.600
$1 .400
61200
51.000
$800
Ot
1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014
-USDA Farmland Value (Intlalion-Adjusted)
U.S. 10-Year Treasury Bond
Note:
11w GDP chain-type price index is used to convert NASS current-dollar statistics to 2009=100 equivalents (Bureau of
Economic Analysis, Department of Commerce). Farm real estate includes land and buildings.
Source: U.S. Bureau of Labor Statistics; USDA; Bloomberg.
A confluence of events in the mid-1980s, including the Savings and Loan crisis, led to a turbulent
time in U.S. agriculture often referred to as a "farm crisis" whereby there was a (i) swift decline in
farm income, (ii) reduced export demand resulting from a foreign grain sale embargo and
(iii) decreased real estate values. In addition, the 1981 Farm Bill was implemented, which increased
price supports for grain in the U.S., which in-turn led U.S. crop exports to become more expensive.
The agricultural shock of that time endured during a period characterized by higher debt levels, high
interest rates and a government imposed grain-sale embargo to the Soviet Union. Reduced income
impaired the farmers' ability to service debt on historically high leverage levels, supply of credit
declined and the environment and circumstances led to a wave of farm bank failures. lbday's current
conditions differ from those in the mid-l980 as interest rates arc historically low and leverage levels
are moderate and well below those experienced during the 1980s.
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Appreciation trends differ by crop type, creating potential crop specific opportunities
We believe crop types that arc less commoditized than row crops, such as mature permanent crops
and specialty/vegetable crops, provide a meaningful opportunity to generate higher income than if we
concentrated our portfolio solely on farms suitable only for commodity row crop production. Mature
permanent crops have generated greater income in recent years, with the rate of change in farmland
appreciation outpacing that of row crops and providing an outsized opportunity for capital appreciation.
We believe that our diversified portfolio of crop types and farms diversified by region will generate
higher levels of appreciation and income returns, and we have the flexibility to opportunistically focus
on crop segments and regions where we sec the most promising high quality properties.
NCREIF Farmland Index Income and Appreciation
NCREIF Farmland Index Income 2009-2014
NCREIF Farmland Index Appreciation 2009.2014
20.0%
I KV*.
151%
15.0%
II T•
Ir 9%
10.0%
5.0%
.Is
AI%
(Is
AS%
0.0%
2009
2010
2011
2012
2013
2014
• Now
• Pennon-cm
9309
2010
2011
2012
2013
2014
• Row
v PC/ma/Mg
Note: Appreciation data shown above does not include returns from income.
Source: NCREIF.
Global and domestic trends benefiting farmland
We expect that farmland as an asset class will benefit from several global and domestic long-term
trends. We believe that as global population continues to grow (according to the U.S. Census Bureau
worldwide population is expected to grow by over 1 billion people from 2014 to 2028), there will
continue to be increased demand for agricultural products and increased incomes in emerging markets
will lead to rising global demand for biofuels. Additional trends that we believe will positively benefit
farmland include that U.S. agricultural exports are projected to continue to increase and arable land
per capita will continue to decline (due to a number of factors, including population growth and an
increase in urbanization converting farmland to other uses). Historically, there have been relatively few
available options for publicly traded investments in U.S. farmland. We believe farmland is an attractive
investment opportunity both due to its return profile and its relatively newer position as an alternative
asset class for institutional investors.
Increasing demand for crops
Demand for US. agricultural crops is forecasted to increase over the long-term, due to increasing
global population, rising emerging market incomes, growing demand from improving diet and nutrition
and continued demand for biofuels. While short-term declines occurred as demand for agriculture
products was negatively affected by the recent global downturn, according to USDA projections,
demand is expected to have recovered in the 2014 calendar year.
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