A few years ago an accountant I know told me about some of her clients. They were a couple of guys on a mission to collect hundreds of millions of dollars in American farmland for a Canadian pension fund. It was then that I started to realize that there is a lot more going on in the world of agrofinance than what you hear. Here are some of the major players in the world of agrofinance.
Types of actors include banks specializing in agricultural loans, non-bank finance companies that provide land and equipment loans, farmer-owned credit unions, REITs that own and manage agricultural real estate. , private equity funds that buy cropland, sovereign wealth funds, and, of course, pension funds.
One of the big players in agrofinance, Rabo AgriFinance in Chesterfield, Missouri, is headquartered just half an hour from my office. I recently met with their Executive Vice President, Curt Hudnutt, to talk about their market share in farm lending and the overall state of farm lending. Rabo grants loans of land, operations and equipment. The company also sells crop insurance and provides commodity price coverage.
One of my goals was to show you the top five agricultural lenders in the United States. Sounds easy, right? This is not the case. You need to collect data from the Federal Reserve and beyond, and you need to specify the criteria. Are you talking about the banks that give more than half of their loans to farms, dollars in farm mortgages, number of farm loans, or whatever? I think the fairest way to categorize them is by how many dollars in farm loans a retail lending entity held at the end of the most recent quarter. I thought this list would only include five major banks, but I was wrong. Here are the top five agricultural lenders as of September 30, 2018:
Agricultural Credit Services of America (ACA)
Crédit Agricole Mid America (ACA)
Rabo Agrifinance / Rabo Bank NA
Compeer Financial (ACA)
You may not know that the farm credit system is not a big national bank like Bank of America. There are actually three agricultural credit banks that provide wholesale loans to 50 agricultural credit associations (ACAs). These ACAs are customer-owned loan cooperatives. One of those farm credit associations in your state turns around and gives loans to local farmers. The two large ACAs listed above account for about half of the agricultural loan balances on the list. Farm Credit Services of America is based in Omaha and has over 50,000 clients. Farm Credit Mid America is headquartered in Louisville and has over 100,000 clients.
The third on the list is an insurance company, which surprised me. They claim to have a $ 16.2 billion farm mortgage portfolio, according to their website. Fourth on the list is a non-bank finance company, although Rabo has a real banking component that primarily provides agricultural loans in California. According to Hudnutt, “In recent years you have seen more and more alternative agricultural lenders, such as input suppliers, equipment suppliers and insurance companies. During our discussion, I asked Hudnutt what he thought about the overall health and sustainability of agricultural loans. He replied, “We are optimistic about the quality of farm debt at this time. As long as agricultural values remain strong, farmers with reasonable levels of debt will survive.
The farm lenders on my list lend money to other farmland owners besides individual farmers, and I want to cover some of those groups. It is easy to cover publicly traded agricultural REITs (real estate investment trusts). There are only two in the United States: Gladstone Land Corporation (LAND) and Farmland Partners Inc. (FPI). LAND went public in January 2013 at $ 15 per share, and REIT opened in April 2014 at $ 12.98 per share. LAND was at $ 11.97 on December 31, 2018 and REIT at $ 5.70. As you can see, yields have been negative for the past five years, but that’s understandable given commodity prices and their effect on the value of cultivated land.
Besides REITs, there are many large pension funds that own farmland. Here is a sample of the approximate value of land by pension fund: Teacher Retirement System of Texas, $ 250 million; New York Pooled Retirement Fund, $ 300 million; New Mexico State Investment Council, $ 325 million; Maine Public Employees Retirement System, $ 410 million; Alaska State Pension System, $ 535 million; and the Washington State Investment Board, $ 985 million. Finally, you have the largest pension fund landowner, Teachers Insurance and Annuity Association (TIAA-CREF) with $ 2.2 billion in land investments. These funds don’t just buy wood and cropland in the United States; they also have land in Brazil, Chile, Australia, New Zealand and Poland.
Pension funds, in general, don’t have people looking for farms to sell. They normally invest in cultivated land through private equity funds, which are investment funds that do not solicit the general public. To illustrate how much money these funds hold, here is a list of some of the biggest funds and how much investors invest in them: TIAA’s Global Agriculture II Fund, $ 3 billion; Hancock Agricultural Investment Group, $ 1.6 billion; Paine & Partners Capital Fund IV, $ 893 million; UBS Agrivest, $ 525 million; Homestead Capital USA Farmland Fund, $ 400 million; NGP Agribusiness Follow-on Fund, $ 402 million; AGR Partners, $ 400 million; and US Farming Realty Trust, $ 300 million. It is difficult to get information on private equity funds, so it is difficult to determine the details of current cropland. However, I discovered that, for example, the TIAA Global Agriculture II fund owns over 300,000 acres of cropland in Australia, South America, and the United States collectively.
Besides large investment funds, there are a huge number of acres in the hands of individual investors. You may have heard of America’s biggest landowners, retired media moguls John Malone of Liberty Media and Ted Turner of CNN. They each own over 2 million acres. The Emmerson family, owners of the Sierra Pacific lumber company, follows closely behind with just under 2 million acres. If you try to make it into the top 10, it will take 831,000 acres, according to a January 2019 report from Newsmax.
Sovereign wealth funds also buy agricultural land. They are essentially state-owned investment companies that invest in financial and real estate assets all over the world. The largest sovereign wealth funds belong to China, the United Arab Emirates, Kuwait and Saudi Arabia. I came across a story from CNBC describing how a Saudi food company bought 10,000 acres in Arizona to grow alfalfa for animal feed. Why grow alfalfa 10,000 miles from where you need it? The water! They send the alfalfa back to Saudi Arabia (along with its water content) so that they don’t have to irrigate with the limited water supply from the desert. There are also foreign individuals and foreign companies that acquire American farmland. According to the USDA, the following countries are home to the largest holders of cropland in the United States: Canada, Germany, the United Kingdom, and the Netherlands.
To sum up, there is a lot going on in the world of agricultural finance. The next time you consider buying that 80-acre rectangular apartment down the road, you’ll have a better idea of who you might be bidding on and who is likely to finance the purchase.