Washington Insider -- Thursday

Non-Farmer Farmland Purchases

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

Grassley, Klobuchar Call for Investigation of Oil Companies' Actions on Ethanol

Two members of the Senate Judiciary Committee have called on the Department of Justice and the Federal Trade Commission to investigate alleged anti-competitive practices by oil companies that include blocking the sale of ethanol.

Committee ranking member Chuck Grassley, R-Iowa, and Sen. Amy Klobuchar, D-Minn., requested the investigation in a letter to the two agencies that alleges "anticompetitive practices aimed at blocking market access for renewable fuels" in an attempt to undermine a 2007 law requiring their use in the motor fuel supply.

Earlier this month, the Renewable Fuels Association issued a report that claims that petroleum companies' use of contracts requiring minimum sales volumes of branded fuels, sales of multiple grades of gasoline or warning labels posted on pumps dispensing higher ethanol blends are preventing the sale of gasoline containing 15% ethanol and 85% ethanol.

The Grassley-Klobuchar letter asks DOJ and the FTC to "review the RFA report, investigate the claims and findings included in it, and reply to us with a substantive evaluation of your conclusions regarding possible anticompetitive behavior by certain oil companies and any proposed solutions or actions the DOJ and FTC will take to resolve this issue."

The senators wrote a similar letter to the DOJ and the FTC in August 2013 but did not receive a response from the agencies other than a promise to look into the allegations. There is no promise that this request will elicit a greater response than did the previous one.

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U.S., Canada Want to Speed Border Crossings

While great attention is focused on the southern U.S. border with Mexico, Canada and the United States are quietly are moving forward with steps aimed at expediting the movement of goods and people across our northern border.

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According to Canada's Border Service Agency, the changes will allow pre-approved companies importing goods into Canada to apply for additional benefits through a special "Platinum" program that will allow importers in the United States to be pre-approved for streamlined clearance at the border. The Platinum program previously had been limited to importers residing in Canada or corporations that had their head office in Canada or operated a branch office in Canada, the CBSA said.

Platinum members who voluntarily show that their business systems, internal controls and self-testing processes ensure trade compliance will be directly responsible for verification of their trade compliance program and get less scrutiny by the CBSA. The Platinum importer program currently has 95 members, accounting for $89.3 billion in annual trade.

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Washington Insider: Non-Farmer Farmland Purchases

While much of the farm press is dominated these days by the expectation of terrible effects from the recent good weather across much of the Midwest — that is, more normal prices — it is interesting to note that at least some of the business press is highlighting the attractions of ag investments. For example, the New York Times recently played up the image of a longtime hedge fund executive interested in farm investments.

The Times is intrigued that representatives of non-rural investors — including New York's biggest real estate dynasty, two Florida sugar barons and the founder of a multibillion-dollar investment firm — who have been buying up farms across the United States through a real estate investment trust called the American Farmland Company. It notes that hedge funds as an investor group have $14 billion invested in farmland and are figuring out new ways to package crops and the soil into an asset class that ordinary investors can buy — including real estate investment trusts listed on national exchanges.

The Times article names some medium-sized investors and then notes these are competing with others with huge war chests. Alaska's state pension fund, for example, had $485.9 million invested in farmland in 2013. The world's biggest asset manager, BlackRock, has $180 million of its clients' money in agricultural funds, the Times says.

Like other surges of farm real estate interest, the current one seems to have been stimulated by investor searches for safe harbors during the 2008 financial crisis. Investors offered their clients ways to invest in the heartland, while avoiding the exotic sliced-and-diced securities that seemed shaky to many. The 2008 period was a major inflection point, according to Philippe de Lapérouse, managing director for the agriculture consulting firm HighQuest Partners.

Then, the Times notes strangely that Wall Street's foray into farmland may present its own challenges. Shares in Farmland Partners and Gladstone Land have been volatile, indicating investor uncertainty. "It's a question of whether it is really in the long term something that's going to appeal to investors," de Lapérouse is quoted as musing.

The article chooses to emphasize the positive, though. It says American Farmland founder D. Dixon Boardman and his partners –– including Harrison LeFrak, of the LeFrak real estate empire in New York; Alfonso and Pepe Fanjul, the Cuban-American owners of a sugar conglomerate; and William von Mueffling, the founder of Cantillon Asset Management — think it will appeal over the long term, and that the investors could "crowd the heartland. "I probably have a call from an interested party once a day, someone who has never invested in farmland," said T. Marc Schober, a partner at Colvin & Company, which connects buyers and sellers of farmland.

Then the Times shows its urban roots by observing that "the few metrics that exist have helped lure many," in writing about an arena that is crowded and jammed with metrics from USDA, every land grant university and dozens of consultants. Still, the few that the newspaper presents are interesting.

These show that the value of farmland in the United States has appreciated on average by 8.4% over the last year and 4.7% annually since 1990. Taking into consideration the income generated by crops, the total average return was 17.4% over the last year and 11.9% annually since 1990.

To round out the picture, the article notes hesitantly, "Not everyone thinks farmland values will continue to rise endlessly. You can certainly overpay for farmland, and if crop prices declined for whatever reason — there are all sorts of reasons why — all of a sudden, the income stream does not support the price you paid for a piece of land," said Jeffrey Havsy, director of research for the National Council of Real Estate Investment Fiduciaries.

But to Mr. de Lapérouse, whose HighQuest Partners started Global AgInvesting with a series of conferences in Dubai, London, New York and Singapore, the current level of interest is just the beginning. "Less than 1% of global farmland is owned by institutional investors," de Lapérouse said. "So even if you quintupled that, it would be a major sea change, but it's still only a little territory."

So, as de Lapérouse continues to journey through sea changes to corporate territory, it is still a little too early to tell whether the next wave of outsider investment in farm operations will expand or wither — but the "Times metric" of total average returns of just under 12% annually since 1990 seems likely to continue to attract attention.

And, it seems fair to mention, that trend could make it even more difficult to justify the high levels of public subsidies going to reduce producers' risk in farming operations — or, to intervene otherwise in the sector. While the Times did not seem to notice that factor, or at least did not mention it, it is likely that the investors did — and, that producers may notice it as well, especially if serves to promote growing non-producer presence in production agriculture policy debates in the future, Washington Insider believes.


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