Agribusiness Investors See a Farm Upswing in Coming Years

Farmland and agribusinesses generally will enjoy multiple tailwinds in the coming market cycle and should be of interest to long-term investors, according to two experts speaking at the recent Privcap Energy Game Change conference in Houston.

Farmland has been out of favor as an asset class for the past five to seven years, said Gabe Santos, Co-Founder and Co-CEO of Homestead Capital, a private equity firm that invests in farmland. “The return drivers [of farmland] are very different than other asset classes,” he said. “You have rising population growth, declining availability of arable land, rising income growth. . . and increased protein as part of your diet.”

These factors will continue to benefit farmland even if the global economy suffers slowed growth, said Santos, who called farmland “recession-proof.”

Ejnar Knudsen, of private equity firm AGR Partners, echoed the rise of protein as an investment theme, saying that aversion to foods once deemed too fattening has reversed with new scientific findings. “After 30 years, the FDA and the USDA has figured out that eggs, almonds, salmon and avocados aren’t bad for you,” said Kundsen. “We see tremendous growth in. . . all these high fat, high protein” food categories. 

Knudsen adds that he sees misinformation affecting another food category right now that might spell an investment opportunity: businesses linked to livestock. For example, cattle businesses are relatively out of favor right now in part due to the impression among many that cows contribute tremendously to climate change, he said. Knudsen added the actual impact of cows on the environment is much lower than some studies have suggested, and as a result “you can get some tremendous returns in that industry because the capital doesn’t want to allocate to it.”

Santos said that fundraising for agribusiness managers has been challenging, in part because it is a nascent asset class at the bottom of a cycle, and in part because agriculture funds are being benchmarked by some investors against oil and gas funds – strategies that are also natural resource-oriented but, Santos argued, not an appropriate comparison. 

Santos predicted attractive deal opportunities in the coming years in part because so many farms are run by aging patriarchs. “Ninety-seven percent of farms are owned by families,” Santos said. “You’ve got a third of farmers that are over the age of 65. . . that don’t have a succession plan.”