# Ceres Partners CIO Brandon Zick on How Private Equity Invests in Farmland

An episode of [Masters in Business](https://invisiblenetwork.ai/podcast/730188152), 7 Nov 2025, 1 h 10 min.

Audio: https://podtrac.com/pts/redirect.mp3/traffic.omny.fm/d/clips/e73c998e-6e60-432f-8610-ae210140c5b1/4e4cd910-40a1-4619-a5f3-ae2b0012ffff/a5a33eaa-ff83-4f33-8ce0-b38e0103362e/audio.mp3?utm_source=Podcast&in_playlist=5873a3cb-298f-40bc-b71f-ae2b0013000d

Barry speaks with Brandon Zick, Chief Investment Officer at Ceres Partners. They discuss how his private equity company invests in farmland, and food, agriculture and water. They also discussed his path into finance from growing up on a farm, to studying finance and Japanese in college. See omnystudio.com/listener for privacy information.

## Transcript

[0:02] Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Masters in
[0:11] Speaker 1: Business with Barry Ritholts on Bloomberg Radio.
[0:16] Speaker 2: On the latest Masters in Business podcast, I sit down
[0:19] Speaker 2: with Brandon Zick. He is the chief investment officer at
[0:23] Speaker 2: Sarah's Farmland Funds, a two billion dollar firm that specifically
[0:28] Speaker 2: invests in farms. I know Brandon for a long time,
[0:33] Speaker 2: and I've watched this asset class grow. I thought this
[0:37] Speaker 2: was really a fascinating conversation. You just have no idea
[0:40] Speaker 2: how complex and interesting farmland investing can be. I thought
[0:46] Speaker 2: this was fascinating, and I think you will also with
[0:48] Speaker 2: no further ado my conversation with Sarah's Farms. Brandon Zick,
[0:54] Speaker 2: thanks for having me.
[0:55] Speaker 1: Berry.
[0:55] Speaker 2: Well, you and I know each other for a long time,
[0:57] Speaker 2: and this is long overdue to have this conversation. And
[1:01] Speaker 2: the Wisdom Tree acquisition was the perfect excuse. Well, we'll
[1:05] Speaker 2: get to that in a moment. I want to start
[1:08] Speaker 2: with your background, which is kind of fascinating. You grew
[1:11] Speaker 2: up on a dairy and crop farm in northeastern Pennsylvania.
[1:16] Speaker 2: How did that farming upbringing shape your attitudes and thoughts
[1:23] Speaker 2: about land, agriculture, value and risk?
[1:28] Speaker 3: Yeah, that's it's a great question because growing up on
[1:32] Speaker 3: a really active family farm, you learn a lot of things,
[1:35] Speaker 3: and one of them was I definitely did not want
[1:37] Speaker 3: to be a farmer for the rest of my life.
[1:39] Speaker 4: We did real work.
[1:40] Speaker 3: I was the oldest of six and so and I
[1:42] Speaker 3: had great parents who you know, instilled great values with us.
[1:45] Speaker 3: But one of those values was the value of hard work.
[1:48] Speaker 3: And we spent a lot of time before and after
[1:50] Speaker 3: school every day actually running this dairy with our parents.
[1:53] Speaker 2: So you're you're up at five five thirty milking cows
[1:56] Speaker 2: before school.
[1:58] Speaker 3: Yeah, before school. Yeah, for us, it'd be about four
[2:00] Speaker 3: point thirty. And with three brothers, usually there's three jobs
[2:04] Speaker 3: on a dairy, milking cow's, working with equipment, and then
[2:08] Speaker 3: managing manure. And even though I was the oldest brother,
[2:11] Speaker 3: I was really good at the third. So that's what
[2:13] Speaker 3: I was focused on.
[2:14] Speaker 2: Well, shoveling manure prepped you for your jobs on Well,
[2:18] Speaker 2: that's right, the obvious, Joe. So let's talk about what
[2:22] Speaker 2: led you to Wall Street. You go to Notre Dame,
[2:24] Speaker 2: you get a BBA in finance and a concentration in Japanese,
[2:28] Speaker 2: which is sort of surprising. What was that career plan
[2:32] Speaker 2: originally other than not a farmer.
[2:34] Speaker 3: Yeah, when I went to Notre Dame, I just wanted
[2:37] Speaker 3: to do something different, and I didn't really know what
[2:39] Speaker 3: I wanted to do. But I actually had a friend
[2:41] Speaker 3: in my dorm that I said, what are you majoring in?
[2:43] Speaker 3: And he said, well, my dad works at Mari Lynch.
[2:45] Speaker 3: I think finance. And I said, well, that sounds interesting,
[2:48] Speaker 3: and so that's how I started thinking about that. And
[2:52] Speaker 3: taking Japanese as a freshman at Notre Dame was really
[2:55] Speaker 3: more about just doing something different than the Latin and French.
[2:58] Speaker 3: I took at my judge war at Ice School and
[3:00] Speaker 3: scrant in Pennsylvania, and they talked to me into doing
[3:03] Speaker 3: a study abroad in Japan, and I really fell in
[3:06] Speaker 3: love with the country and the culture. And if I
[3:08] Speaker 3: had been looking in you forward, instead of reverse, I
[3:12] Speaker 3: probably would have taken Chinese or something else that I
[3:14] Speaker 3: was looking backwards, and you know, continued on with the
[3:18] Speaker 3: Japanese and then was lucky enough throughout my career to
[3:21] Speaker 3: be able to spend some time there, not full time,
[3:24] Speaker 3: but at least to travel to Japan. And if we
[3:26] Speaker 3: ever get to the point that we have Japanese investors.
[3:29] Speaker 3: That'd be really exciting too.
[3:31] Speaker 2: So first gig right out of school is you become
[3:34] Speaker 2: you join the finance analyst program at Lehman Brothers. Was
[3:38] Speaker 2: that here? Was that close?
[3:41] Speaker 3: Yeah?
[3:41] Speaker 4: That was here in New York. Yeah.
[3:42] Speaker 3: We started training in one World Trade at July of
[3:45] Speaker 3: two thousand and one, and we were eventually in three
[3:47] Speaker 3: World Financial Center. And I spent three years at Lehman
[3:51] Speaker 3: Brothers and learned a lot of different things, but some
[3:54] Speaker 3: of it was I don't know what I want to do,
[3:57] Speaker 3: and I had a friend that had moved to Morgan's
[4:00] Speaker 3: and that's how I made my way shortly thereafter over
[4:03] Speaker 3: there and spent six years at Morgan Stanley in various roles,
[4:07] Speaker 3: but I knew I always wanted to be on the
[4:09] Speaker 3: buy side. And everyone dreams of being in private equity
[4:14] Speaker 3: and how do you get there?
[4:14] Speaker 4: And it's a difficult path.
[4:16] Speaker 3: And when you think about what are the things that
[4:20] Speaker 3: you could be good at or that you have interest in,
[4:23] Speaker 3: That's how I kind of looped back around to this
[4:25] Speaker 3: agriculture piece because I had a lot of valuation experience
[4:28] Speaker 3: at Morgan Stanley and we worked on a number of
[4:31] Speaker 3: transactions and I thought, well, how do I apply this
[4:34] Speaker 3: to agriculture, And they're just it's not like in every
[4:37] Speaker 3: other asset class where there's thirty or forty places and
[4:40] Speaker 3: everyone has a fund and you just choose where you
[4:42] Speaker 3: want to go. There's actually very few people that invest
[4:44] Speaker 3: in agriculture exclusively, and so it was kind of stacking
[4:48] Speaker 3: that background of valuation and transaction experience and maybe a
[4:53] Speaker 3: rekindled interest in agriculture and farmland, not on the actual
[4:56] Speaker 3: labor side, but on the investment side. How do you
[4:59] Speaker 3: do this outside of just the big boys like John
[5:02] Speaker 3: Deere or Kseih or at the time on Santo or
[5:05] Speaker 3: these big egg companies.
[5:07] Speaker 4: How do you do it?
[5:08] Speaker 3: So that's kind of how I made that path all
[5:10] Speaker 3: the way back around.
[5:11] Speaker 2: So you prefer spreadsheets to pitch forks and shovels.
[5:14] Speaker 4: A little bit.
[5:15] Speaker 3: Yeah, Although there are plenty of days in my career
[5:18] Speaker 3: now that you get tired of being in the office
[5:21] Speaker 3: new side, I'd much rather drive around and look at
[5:23] Speaker 3: some of our properties and check in on some of
[5:25] Speaker 3: our farm tenants.
[5:26] Speaker 2: Well, we're going to talk about the farms and the
[5:28] Speaker 2: tenants and what that investment process is like. But I
[5:32] Speaker 2: just want to stay with Morgan Stanley for a moment.
[5:35] Speaker 2: You're there for six years. You start out really is
[5:38] Speaker 2: a grunt and strategic planning, due diligence, valuation analysis, deal
[5:43] Speaker 2: negotiation execution. But eventually you become a VP in the
[5:46] Speaker 2: investment management division. Is that way you really hone your
[5:51] Speaker 2: chops on acquisitions and strategy.
[5:53] Speaker 3: Yeah, it was an interesting time to be there within
[5:56] Speaker 3: investment management. Morgan Stanley had a mandate to really grow
[5:59] Speaker 3: that business, actually on the alternative side. So the plan
[6:02] Speaker 3: had been to put together a pretty sizable balance sheet
[6:06] Speaker 3: by minority stakes and asset managers, maybe take some asset
[6:09] Speaker 3: managers like front Point over completely. And then the Great
[6:13] Speaker 3: Financial Crisis happened and we went from a team that
[6:17] Speaker 3: was really given the opportunity to use a balance sheet
[6:20] Speaker 3: to we were told we need to create a balance sheet.
[6:23] Speaker 3: So things that we had bought now needed to be sold.
[6:26] Speaker 3: And that was really the impetus for the transaction that
[6:30] Speaker 3: sold Van Campen and a handful of other Morgan Stanley
[6:33] Speaker 3: equity businesses to Investo. So on that deal, I was
[6:36] Speaker 3: actually working more on the sell side of that deal.
[6:38] Speaker 3: And when you're selling things, you realize this probably isn't
[6:41] Speaker 3: a long term career strategy.
[6:43] Speaker 4: Eventually you run out of things to sell, I.
[6:45] Speaker 2: Once the seper balance sheet runs down. So you started
[6:49] Speaker 2: at Leman, but you got out of there before the
[6:51] Speaker 2: financial crisis. You lived through the financial crisis. At Morgan Stanley.
[6:57] Speaker 2: The CEO at the time was John Mac Is that right?
[7:00] Speaker 4: Oh?
[7:00] Speaker 3: When I started, it was Phil Purcell. John Mack came
[7:03] Speaker 3: shortly thereafter, and then or came back shortly thereafter, and
[7:07] Speaker 3: then during my time there within investment management, James Gorman
[7:12] Speaker 3: to take over.
[7:13] Speaker 2: I had Mac on the program a couple of years
[7:15] Speaker 2: ago after he wrote his autobiography, and really, of all
[7:20] Speaker 2: the major brokerage farms, there were a handful of companies
[7:24] Speaker 2: that came through the financial crisis balance sheet and reputation intact.
[7:31] Speaker 2: Max seems to be the guy that guided Mogan Stanley through,
[7:34] Speaker 2: cut that very reasonable deal with Mitsubishi for some much
[7:38] Speaker 2: needed capital and came out the other side. And Morgan
[7:41] Speaker 2: Stanley is now absolutely one of the biggest broken shops,
[7:46] Speaker 2: full service broken shops on the street.
[7:49] Speaker 4: Yeah.
[7:49] Speaker 3: I mean they've you know, not without peril for everyone
[7:53] Speaker 3: at that time, but certainly you know, they were able
[7:55] Speaker 3: to navigate, navigate through and away that very few were
[7:58] Speaker 3: able to do it as successful as Morgan Stanley was.
[8:01] Speaker 2: And at Morgan Stanley, is that why you got your
[8:04] Speaker 2: chartered Alternative Investment Analyst credit?
[8:08] Speaker 4: Yep, I did that.
[8:09] Speaker 3: I didn't have the time to do the CFA also
[8:13] Speaker 3: during that time, but yeah, it was something that was
[8:15] Speaker 3: slightly different. And you know, I always had interesting commodities
[8:19] Speaker 3: and other types of alternatives, not just hedge funds or
[8:21] Speaker 3: private equity, so there was it was just a.
[8:23] Speaker 4: Way to learn a little more. And I added to
[8:25] Speaker 4: the resume.
[8:27] Speaker 2: How much did the financial crisis precipitate your saying, Hey,
[8:31] Speaker 2: I have skills and I have insights, I'm going back
[8:34] Speaker 2: to farmland but from a different perspective.
[8:37] Speaker 3: Yeah, well, it definitely started the conversation. And being here
[8:40] Speaker 3: in New York, I knew there were very few options
[8:42] Speaker 3: for probably investing in agriculture, at least at that time.
[8:45] Speaker 3: Even today we don't recommend it, but there are people
[8:48] Speaker 3: in the big city on the coasts that invest in farmland.
[8:52] Speaker 3: And I had a very close friend from Notre Dame
[8:54] Speaker 3: that at the time was running private equity at Notre
[8:57] Speaker 3: Dame's endowment, and I had contacted him and said I'm
[9:00] Speaker 3: interviewing with a few of these firms that invest in farmland,
[9:03] Speaker 3: so groups like John Hancock and UBS that had existing
[9:07] Speaker 3: funds or separate account businesses that would invest in US
[9:10] Speaker 3: or global farmland. And I asked him, have you guys
[9:13] Speaker 3: underwritten them, have you invested with them, have you talked
[9:15] Speaker 3: to them? And he was very frank and he said, generally,
[9:19] Speaker 3: we don't think you get paid for the risk involved
[9:22] Speaker 3: with investing in land and the duration that you need
[9:25] Speaker 3: to hold it.
[9:26] Speaker 4: But he said, let me introduce you to it.
[9:28] Speaker 3: There's another Notre Dame guy that he started something really small.
[9:31] Speaker 3: He's got very few assets, but he's investing in farmland.
[9:35] Speaker 3: And that's how I met our founder, Perry Beef, through
[9:37] Speaker 3: my friend Tim Dozol, who's now the CIO of Notre
[9:40] Speaker 3: Dames and Dowman actually runs the whole shop. So he's
[9:43] Speaker 3: had a very successful career and one of the best decisions,
[9:46] Speaker 3: at least from my standpoint, that he made was putting
[9:48] Speaker 3: Perry and I in touch.
[9:50] Speaker 2: It's amazing how these random introductions through various networking groups
[9:56] Speaker 2: and alumni groups really can lead to some interesting outcomes.
[10:02] Speaker 2: When you joined Sarahs in twenty ten thirty million dollars.
[10:06] Speaker 2: I mean that's a that's a small single brokerage account.
[10:10] Speaker 2: What were you thinking joining a firm that tiny?
[10:15] Speaker 3: You know, that sounds a lot like what my wife
[10:16] Speaker 3: was asking me at the time too. Why are we
[10:19] Speaker 3: doing this and what are we doing? And it was
[10:22] Speaker 3: interesting there were Perry had thirty million in assets, I
[10:25] Speaker 3: think it was seventeen million in equity and we didn't
[10:27] Speaker 3: charge on the debt. So he said, I can afford
[10:29] Speaker 3: to pay you something. It won't be much, but it'll
[10:32] Speaker 3: be something. And I talked to my wife, Aaron, and said,
[10:35] Speaker 3: I think this would be a great opportunity, and she
[10:38] Speaker 3: kind of echoed some of the things that people I
[10:40] Speaker 3: worked with at Morgan Stanley when I.
[10:42] Speaker 4: Said, well what do you do if this? Yeah, what
[10:44] Speaker 4: do you do if this fails?
[10:45] Speaker 3: And of course no one knew anything about what we
[10:47] Speaker 3: were going to do, but they said, well what if
[10:48] Speaker 3: it fails? I said, well, if it fails, there's two
[10:51] Speaker 3: things that give me confidence. One is I'll know it
[10:54] Speaker 3: there's only you know, it's a very small shop. It's
[10:56] Speaker 3: not like some trader in Singapore is going to blow
[10:58] Speaker 3: us up overnight. I'll know it's not working, either the
[11:01] Speaker 3: investments are bad or we're not raising money. And the
[11:04] Speaker 3: second was there's going to be a great skill set
[11:07] Speaker 3: developed here that even if it doesn't work, the worst
[11:09] Speaker 3: thing I can do is just move back to New York.
[11:11] Speaker 3: And now I've got a differentiated thing on my resume.
[11:15] Speaker 3: So you know, we started there. We moved in December
[11:18] Speaker 3: of twenty ten to South Bend, Indiana. It's not a
[11:21] Speaker 3: great weather trade really, even in New York December is
[11:24] Speaker 3: not great, but South Bend it's much worse.
[11:26] Speaker 2: That's like zero and a lot of snow.
[11:28] Speaker 4: It's cool.
[11:29] Speaker 3: Yeah, there was a lot of snow as the moving
[11:31] Speaker 3: truck was moving in. But it's been great and we
[11:35] Speaker 3: started to really build that momentum. And you know, just
[11:40] Speaker 3: being in on the ground floor of a company with
[11:43] Speaker 3: a founder who has a vision is you know, you
[11:46] Speaker 3: can't ask for anything more.
[11:48] Speaker 2: So farmland is a real asset. It's different from traditional
[11:54] Speaker 2: real estate assets. You think of offices, multifamily, warehouse, there's
[11:59] Speaker 2: so many different single family homes. What is it about
[12:03] Speaker 2: farmland that makes it such a unique investment opportunity?
[12:07] Speaker 3: Yeah, I mean there's a few things that go into
[12:09] Speaker 3: it that just make this market different, and I don't
[12:12] Speaker 3: personally think you have to have grown up on a
[12:14] Speaker 3: farm to know anything about farmland or agriculture. But it
[12:18] Speaker 3: is a very you know, it's a very people person
[12:21] Speaker 3: business because these are the types of properties that we
[12:24] Speaker 3: believe you have to rent directly. We don't use just
[12:27] Speaker 3: property managers to go out and do it. But in
[12:30] Speaker 3: farmland there hasn't really been an institutional roll up. So
[12:33] Speaker 3: in office, in manufacturing and distribution centers and cold storage,
[12:38] Speaker 3: everything's been rolled up over time into big institutions. And
[12:41] Speaker 3: probably the most similar to farmland when you think of
[12:44] Speaker 3: what is the underlying asset would be timber, and back
[12:47] Speaker 3: forty years ago Jeremy Grantham and others started a huge
[12:51] Speaker 3: kind of move of taking the end users of timber
[12:54] Speaker 3: and handing their assets that they're going to use as
[12:58] Speaker 3: part of the end product two investors. But in farmland,
[13:02] Speaker 3: the end users don't own the land. So the groups
[13:04] Speaker 3: like John Deere and Monsanto and Mosaic and EIGHTM they
[13:08] Speaker 3: might either sell into agriculture or buy products out of it.
[13:12] Speaker 3: But the land, while it is the true means of production,
[13:15] Speaker 3: it's usually owned by others, not these big corporations. So
[13:19] Speaker 3: particularly in the Midwest. You'd say that active family farmers
[13:23] Speaker 3: like that farm I grew up on, own about forty
[13:25] Speaker 3: percent of the real estate. Institutional investors today own about
[13:29] Speaker 3: three percent, and that includes the largest investors like the
[13:32] Speaker 3: Mormon Church, the Bill and Melinda Gates Foundation, groups like
[13:36] Speaker 3: Cyrus that might own between a couple hundred million to
[13:39] Speaker 3: three or four billion in assets. But you just don't
[13:42] Speaker 3: have these big other groups that own land. It's a
[13:46] Speaker 3: very disperse ownership group made up of estates, trusts, non
[13:51] Speaker 3: farming heirs that have owned this for generations and two
[13:55] Speaker 3: or three generations previously they were actively farming the ground.
[13:59] Speaker 3: They went to college and did other things. But there's
[14:01] Speaker 3: zero pretty much zero vacancy in US farmland.
[14:04] Speaker 2: Zero vacancy. That's amazing.
[14:07] Speaker 3: Every farm that can be farmed is farmed every year.
[14:10] Speaker 3: And you lose farmland every year in the US because
[14:13] Speaker 3: of things like development and conservation and in parts of
[14:16] Speaker 3: California maybe lack of water aridity that they take farms
[14:20] Speaker 3: out of production to transfer water to other properties. So
[14:24] Speaker 3: you have this group of this total pile of farmland
[14:27] Speaker 3: in the US that gets smaller every year. You have
[14:30] Speaker 3: farmers that understand this is a scale game. They want
[14:33] Speaker 3: to grow. So it's an interesting dynamic for investors to
[14:37] Speaker 3: come into the space because it's not as if if
[14:40] Speaker 3: you decided tomorrow Berry that you wanted to farm one
[14:43] Speaker 3: hundred thousand acres. You could buy all the equipment, the seed,
[14:46] Speaker 3: the fertilizer, the chemicals, and you could find the labor
[14:49] Speaker 3: to do all of that. But what you wouldn't find
[14:51] Speaker 3: is one hundred thousand available acres to go farm.
[14:54] Speaker 2: It's that small amount of acreage comes up each year.
[14:58] Speaker 3: Yeah, it's very well, it's just not up. There's not
[15:01] Speaker 3: a jump ball every year for it. It's all occupied
[15:04] Speaker 3: and even most farmers. And I'll use the Midwest as
[15:08] Speaker 3: an example because growing up in the Northeast, farmland was
[15:11] Speaker 3: much different. There wasn't quite as a robust a rental
[15:14] Speaker 3: market in the Midwest, which is one of the reasons
[15:16] Speaker 3: we've focused on that is there's a very robust rental market,
[15:19] Speaker 3: and we want to rent land. So we want not
[15:22] Speaker 3: just one or two large farmers who will provide us
[15:24] Speaker 3: with a rent indication or a rent bid. We want
[15:28] Speaker 3: the opportunity to have ten or twenty different farmers and
[15:31] Speaker 3: these are all we work with across the board one
[15:34] Speaker 3: hundred and seventy different farm tenants today, and all of
[15:38] Speaker 3: those farm tenants rent our land, they own land, and
[15:41] Speaker 3: they rent a lot of land from other people. So
[15:43] Speaker 3: that actually becomes kind of a long term proprietary deal
[15:46] Speaker 3: sourcing network for new acquisitions. So we feel like we
[15:49] Speaker 3: are doing the institutional roll up. If we decided we're
[15:53] Speaker 3: only going to do deals of twenty five or fifty
[15:56] Speaker 3: million in size, there's not a lot of deals to
[15:58] Speaker 3: do every year, and certainly in the Midwest.
[16:01] Speaker 2: Mostly smaller family farms, regional farms that occasionally come up
[16:06] Speaker 2: when the next generation sides, we don't want to farm
[16:10] Speaker 2: this the way mom and dad and grandpa did. We're
[16:14] Speaker 2: going in the big city.
[16:15] Speaker 3: Right, And even a lot of what they've already made
[16:18] Speaker 3: that decision, in some cases a generation to go, but
[16:21] Speaker 3: they still own the land. It's been more of not
[16:23] Speaker 3: a financial asset, but more like a family asset. And
[16:26] Speaker 3: what you tend to see and taxes drive a lot
[16:29] Speaker 3: of behavior in every industry. In agriculture, it's pretty meaningful
[16:33] Speaker 3: because if you have this one very large real estate asset,
[16:37] Speaker 3: people usually wait to get that step up in basis
[16:39] Speaker 3: and then they're saying, well, now is the time we're
[16:41] Speaker 3: going to sell, regardless of market conditions. We don't want
[16:44] Speaker 3: to pay the tax going back three, four or five
[16:47] Speaker 3: generations to a cost basis of nothing. So there are
[16:51] Speaker 3: kind of unique time periods of maybe twenty twelve and
[16:53] Speaker 3: of twenty twelve was an example where there were some
[16:56] Speaker 3: new tax things coming up, a higher long term capital
[17:01] Speaker 3: gains tax, the Obamacare investment tax, and there was at
[17:04] Speaker 3: least a discussion around that, a state tax exemption being
[17:07] Speaker 3: reduced from I think at the time it was at
[17:09] Speaker 3: four and a half or five and a half million
[17:11] Speaker 3: per spouse down to a million. So that drove some
[17:14] Speaker 3: real behavior at the end of twenty twelve from people saying,
[17:17] Speaker 3: we want to sell this before the taxes go up.
[17:20] Speaker 3: Usually folks just wait until they get that step up
[17:23] Speaker 3: in basis and then they're going to sell it.
[17:25] Speaker 2: And today a family or what is it, fifty to
[17:29] Speaker 2: twelve used to be twelve million exemption for states, I
[17:32] Speaker 2: think it's up to close to fifteen.
[17:34] Speaker 3: Yeah, per spouse, per spouse significantly larger. So any discussion
[17:38] Speaker 3: around a reduction in that, which obviously things get being
[17:42] Speaker 3: permanent and I'll use air quotes around permanent because everything changes.
[17:47] Speaker 3: But yeah, that when you have this one significantly large
[17:50] Speaker 3: asset that the tax taxation on that will dictate how
[17:54] Speaker 3: they move it sometimes.
[17:55] Speaker 2: Huh, really fascinating. Coming up, we continue our conversation with Brandon,
[18:00] Speaker 2: chief investment officer of Sarah's Farms, discussing how he helped
[18:04] Speaker 2: grow the fund from thirty million dollars up to two billion.
[18:08] Speaker 2: I'm Barry Ridults. You're listening to Masters in Business on
[18:12] Speaker 2: Bloomberg Radio. I'm Barry Dults. You're listening to Masters in
[18:30] Speaker 2: Business on Bloomberg Radio. My extra special guest this week
[18:33] Speaker 2: is Brandon Zick. He's chief investment officer of Sarah's Farms.
[18:37] Speaker 2: They are a specialty fund investing in farms and farmland.
[18:42] Speaker 2: So let's talk a little bit. We were discussing earlier
[18:46] Speaker 2: how farmland generates revenue, and we're going to go into
[18:51] Speaker 2: great detail with that, but I want to explain to
[18:53] Speaker 2: investors what farmland gives them exposure to what are you
[18:59] Speaker 2: getting when you buy a chunk or a bunch of
[19:03] Speaker 2: different farms.
[19:04] Speaker 3: Yeah, so farmland, and I'll focus more on Midwest row crops,
[19:09] Speaker 3: but row crops generally are annual crops because there are
[19:12] Speaker 3: a few different buckets.
[19:13] Speaker 2: And when you say row crops, I think corn, wheat, barley.
[19:17] Speaker 3: Yeah, vegetables, annual crops the crops that are planted every
[19:20] Speaker 3: year you rotate, as opposed to permanent crops, and really
[19:24] Speaker 3: it's a complete distinction.
[19:25] Speaker 4: Permanent crops would be things like wine.
[19:27] Speaker 3: Grapes, pecans, almonds, pistachios, blueberries, things like that, where your
[19:34] Speaker 3: exposure is not just to dirt, which is what row
[19:38] Speaker 3: crops really is. Like our asset is dirt, and there's
[19:40] Speaker 3: optionality around what you can plant there. Your exposure in
[19:44] Speaker 3: permanent crops is more specific to a specific crop and
[19:47] Speaker 3: in some cases also a very specific variety. So if
[19:50] Speaker 3: you had red delicious apples and they're out of favor
[19:53] Speaker 3: and people want honeycrisp apples, then while you own apples,
[19:56] Speaker 3: you don't own the prime asset. And so we've focused
[19:59] Speaker 3: on most exclusively on row crops and wrote and we've
[20:03] Speaker 3: done that for a few reasons. One is we think
[20:05] Speaker 3: it's much less risk, but it also hits on the
[20:09] Speaker 3: investment objectives of farmland we think more cleanly. So some
[20:12] Speaker 3: of that is current income, a positive correlation with inflation,
[20:17] Speaker 3: diversification and a portfolio non correlation, and then also an
[20:21] Speaker 3: appreciating capital asset. So our asset is primarily dirt, so
[20:26] Speaker 3: there's a little bit depreciation you can take around things
[20:30] Speaker 3: like if there's buildings or grain storage bins or irrigation equipment,
[20:35] Speaker 3: but primarily our asset is just dirt and it's appreciating
[20:38] Speaker 3: over time. And the reason for that is a few things.
[20:42] Speaker 3: The Chicago Fed has data going back almost seventy years
[20:45] Speaker 3: that'll say that farmland has averaged about six percent price
[20:49] Speaker 3: appreciation during those seventy years on an annualized basis.
[20:53] Speaker 2: Is that real net of inflation or before flave.
[20:56] Speaker 4: That's total, that's gross.
[20:58] Speaker 3: So if you look at what compose it, what makes
[21:01] Speaker 3: up that, it's really just inflation plus gains and productivity.
[21:04] Speaker 3: So every time there's new technology, whether it's seed genetics
[21:08] Speaker 3: or fertilizer technology or equipment technology, anything that can create
[21:13] Speaker 3: more yield on a farm, in theory, that return should
[21:18] Speaker 3: fall to the landowner, or at least a portion of
[21:20] Speaker 3: it should fall to the landowner, not just to the operator.
[21:23] Speaker 3: So if you're an active manager, we feel like you'll
[21:25] Speaker 3: capture some of that. If you're a passive owner of
[21:28] Speaker 3: land that doesn't understand, well, what is the land actually producing?
[21:32] Speaker 3: What should I be generating in rent? How do I
[21:34] Speaker 3: capitalize that into a land value? Maybe you don't, but
[21:37] Speaker 3: if you look back over time, that capital appreciation has
[21:40] Speaker 3: been about six percent and it's really just though maybe
[21:43] Speaker 3: there's been a little bit of cap rate compression, but
[21:45] Speaker 3: it's more around gain some productivity and then just CPI inflation.
[21:50] Speaker 2: Let's talk about inflation. I was reading last week that
[21:52] Speaker 2: beef prices are at record highs. For many types of investors,
[21:57] Speaker 2: especially fixed income, inflation is really a big challenge to
[22:02] Speaker 2: navigate around it. Sounds like with farm land, inflation isn't
[22:07] Speaker 2: necessarily a bad thing. How do you think about rising prices,
[22:12] Speaker 2: especially in the supermarket, and what that means to the
[22:15] Speaker 2: properties you owt?
[22:17] Speaker 3: Yeah, So within agriculture, inflation comes two ways. So if
[22:20] Speaker 3: you're an operator, if you're a farmer, inflation's real because you're.
[22:24] Speaker 2: Pan morph seed, fertilizer, chemicals.
[22:27] Speaker 3: Equipment, wages, wages, everything that gets baked into growing that crop,
[22:31] Speaker 3: Inflation plays a part in it. As the landowner, the
[22:35] Speaker 3: actual dirt has a very positive correlation with inflation over time,
[22:38] Speaker 3: So I'm not going to say we love inflationary environments,
[22:42] Speaker 3: but this is an investment that's built for inflationary environments.
[22:45] Speaker 4: And the way that we.
[22:46] Speaker 3: Think about how global central banks treat, you know, the
[22:50] Speaker 3: way they do business. We think we're in an inflationary
[22:53] Speaker 3: environment for the long term, so we think this is
[22:56] Speaker 3: an asset that works well with that.
[22:58] Speaker 2: This is a good hedge against rising prices.
[23:00] Speaker 4: That's right.
[23:01] Speaker 3: And we've you know, back when rates were extremely low,
[23:04] Speaker 3: a lot of our investors used farmland or used cyrus
[23:07] Speaker 3: as an inflation subs or a fixed income substitute, something
[23:12] Speaker 3: that's positively correlated with inflation. Even with rates being higher,
[23:16] Speaker 3: I view farmland more as a tips like thing, and
[23:19] Speaker 3: we haven't seen much appreciation that.
[23:21] Speaker 2: What is the yield on farmland as investor? And where
[23:26] Speaker 2: does that yield come from? Is it rent? Is it
[23:28] Speaker 2: sale of property? Is it other elements?
[23:31] Speaker 3: Yeah, so the gross rental yield on our portfolios range
[23:36] Speaker 3: between four and five percent a year. Now, when you
[23:39] Speaker 3: think about if you look at the index, so there's
[23:41] Speaker 3: non investable indices that are out there, or if you
[23:45] Speaker 3: look at the Chicago Fed or some of the large
[23:48] Speaker 3: land grant universities, they'll put out a lot of data
[23:50] Speaker 3: around what cap rate to do farms trade at, because
[23:53] Speaker 3: while there's no Indiana farmland go on Bloomberg yet, there
[24:00] Speaker 3: there are a lot of public transactions that happen and
[24:02] Speaker 3: will attend two to three hundred public auctions a year,
[24:06] Speaker 3: and there'll be an attorney's offices vfws. These are on
[24:10] Speaker 3: a random Tuesday night at six o'clock, someone's selling one
[24:12] Speaker 3: hundred and twenty acres of farmland and we track where
[24:15] Speaker 3: does this sell versus our reserve price? We know what
[24:19] Speaker 3: rent we could earn on that property. So what implied
[24:22] Speaker 3: caprate is land selling at. Generally speaking, in the Midwest,
[24:26] Speaker 3: in the Chicago Fed seventh District, land trades at one
[24:29] Speaker 3: and a half to two and a half percent, and
[24:31] Speaker 3: your buyer is typically a neighboring farmer, so that's their
[24:34] Speaker 3: strategic investment they're making, and that farmer may take the
[24:38] Speaker 3: landowner rental return and they're operating return and compress them
[24:42] Speaker 3: together to justify whatever price they're paying. But we try
[24:46] Speaker 3: to target that four and a half to five and
[24:48] Speaker 3: a half percent when we purchase a farm, and that'll come.
[24:52] Speaker 3: It'll all come exclusively in terms of rent. That's what
[24:54] Speaker 3: we're underwriting. But then the total return will be that
[24:57] Speaker 3: mix of rental income and then a preciation over time
[25:01] Speaker 3: and appreciation can be that beta that I referred to
[25:04] Speaker 3: that you know Chicago Fed data that says six percent
[25:07] Speaker 3: a year on average. But then there's alpha that we
[25:09] Speaker 3: can add and a lot of that is because the
[25:11] Speaker 3: people that are selling farms are usually not active farmers.
[25:15] Speaker 3: I mentioned these are estates trust, non farming airs, and
[25:18] Speaker 3: there's some low hanging fruit in terms of capex that
[25:22] Speaker 3: a farm land investor can do to decrease the risk
[25:25] Speaker 3: of a crop growing and also increase the yield. So really,
[25:29] Speaker 3: you know, a common thing that we do is add irrigation,
[25:33] Speaker 3: and that irrigation will help us increase the yield, decrease
[25:37] Speaker 3: the risk for the tenant, and increases our rent. But
[25:39] Speaker 3: also we can capitalize that increased rent into a higher
[25:42] Speaker 3: land value over time. So if we can find those
[25:45] Speaker 3: opportunities to do the capex, that's our bread and butter.
[25:48] Speaker 2: I'm going to say something that sounds a little ridiculous,
[25:51] Speaker 2: but you're a gram DoD valuation investor into farmland. Is that?
[25:57] Speaker 2: Am I getting this right?
[25:58] Speaker 4: Yeah?
[25:59] Speaker 3: I mean there's no black box here to what we're doing.
[26:01] Speaker 3: It's really a blocking and tackling strategy. And we encourage
[26:05] Speaker 3: all of our investors when they when they're contemplating this,
[26:08] Speaker 3: or even on an annual or bi annual basis, come
[26:12] Speaker 3: out and look at these properties and see what we're doing.
[26:14] Speaker 3: And we have folks that have, you know, trade, they've
[26:17] Speaker 3: been trading their entire career, and they'll come to a
[26:19] Speaker 3: farm auction and say, well, you were underwriting the same
[26:22] Speaker 3: rent on two properties across the street from each other.
[26:25] Speaker 4: One sold for X, one sold for two X. How
[26:28] Speaker 4: does that happen?
[26:29] Speaker 3: And it's just who wanted which one and how In
[26:32] Speaker 3: some in some cases or instances, the way in which
[26:35] Speaker 3: the farm is being sold is inefficient. The rental market's
[26:39] Speaker 3: completely inefficient. So there are times that we've bought properties,
[26:43] Speaker 3: in some cases from other institutional investors and we've doubled
[26:46] Speaker 3: the rent on day one, not because we wanted to
[26:48] Speaker 3: charge an uneconomic rent, but because the farmer was willing
[26:52] Speaker 3: to pay that rent for that land, and the active
[26:56] Speaker 3: management that the previous owner was using was either not
[26:59] Speaker 3: very good or not that act. So that's where we
[27:01] Speaker 3: think we do a really good job of just identifying
[27:04] Speaker 3: where can we add alpha? And then again, it's not
[27:08] Speaker 3: a black box. This is really just ticking and tying
[27:11] Speaker 3: and blocking into.
[27:12] Speaker 2: So let's talk about that alpha. You talked about rental
[27:16] Speaker 2: income and appreciation and sale of land. But I recall
[27:20] Speaker 2: a conversation we had years ago up in Maine where
[27:24] Speaker 2: you described all these additional ways that professional farmland management
[27:30] Speaker 2: generates improved economics. And some of the notes I took
[27:35] Speaker 2: mineral rights, solar and wind farm easements, additional land use.
[27:42] Speaker 2: How do you take farmland that for centuries has just
[27:45] Speaker 2: been producing crops and find ways to improve the economics?
[27:49] Speaker 3: Yeah, and you know, investing in the US is a
[27:53] Speaker 3: key part of this, because the landowner has a lot
[27:55] Speaker 3: of rights that in other parts of the world you
[27:57] Speaker 3: just don't have. So mineral rights here in the US
[27:59] Speaker 3: that the surface owner generally.
[28:01] Speaker 2: Owns them all the way down right.
[28:02] Speaker 3: Yeah, and in some cases those rights have been severed
[28:05] Speaker 3: one hundred years ago. And in certain parts of the
[28:08] Speaker 3: Midwest and out west you don't own mineral rights.
[28:11] Speaker 4: We like to own them. It's kind of funny.
[28:14] Speaker 3: The family farm I grew up on in northeastern Pennsylvania,
[28:16] Speaker 3: growing up, no one knew what Marcella's shale was, but
[28:19] Speaker 3: everyone in Susquehanna County has made more money pumping gas
[28:22] Speaker 3: than they ever did milking cows. And it was really
[28:25] Speaker 3: seeing that in the early two thousands that as we
[28:28] Speaker 3: buy land, you think, well, how do you maximize the value?
[28:32] Speaker 3: These are real assets. They have to be actively managed,
[28:35] Speaker 3: something as simple as harvesting timber that's really low hanging fruit,
[28:39] Speaker 3: doing select cuts, renting farms out for recreation, or hunting. Frankly,
[28:44] Speaker 3: if you don't rent it out, someone will hunt that
[28:46] Speaker 3: property anyway without insurance and without paying you anything.
[28:49] Speaker 4: So you might as well.
[28:50] Speaker 3: Get insurance and get paid for it. So Perry had
[28:53] Speaker 3: Perry veth our founder. He had been doing that long
[28:56] Speaker 3: before in parts of Indiana and Illinois, generating mineral rights.
[29:00] Speaker 3: But the way that he structured our Vehicle was really
[29:03] Speaker 3: beneficial to some of these long term value options because
[29:06] Speaker 3: I think when he was starting serious in two thousand
[29:08] Speaker 3: and seven, most of the people that he worked with
[29:11] Speaker 3: at the time and friends of his in private equitieset
[29:14] Speaker 3: just set up a typical draw down fund and get
[29:16] Speaker 3: it invested.
[29:17] Speaker 2: As opposed to perpetual.
[29:18] Speaker 3: Yeah, at the end of eight or ten years just
[29:20] Speaker 3: sell them all off. He decided that an evergreen fund
[29:23] Speaker 3: really fit the asset class better because most of the
[29:26] Speaker 3: farm tenants were working with they want to farm this
[29:29] Speaker 3: property for ten, twenty thirty years, and that's kind of
[29:32] Speaker 3: the way they're thinking in terms of how they grow
[29:33] Speaker 3: their business, and being able to own the property for
[29:37] Speaker 3: that long makes a lot of sense if you have
[29:39] Speaker 3: less ease that want to rent that way. And if
[29:41] Speaker 3: you think of who are the ultimate over time, who
[29:44] Speaker 3: are going to be the ultimate investors in this asset class,
[29:46] Speaker 3: It's going to be folks that have very long dated
[29:49] Speaker 3: either goals or liabilities. So in Endowment's foundations, trust infrastructure funds,
[29:54] Speaker 3: insurance companies. So having this long dated asset where you're
[29:57] Speaker 3: not forced to churn or forced to have these transaction
[30:01] Speaker 3: cost is really important. And what we found later on
[30:04] Speaker 3: too was some of the optionality around farm So wind
[30:08] Speaker 3: has been around for a long time and that's kind
[30:10] Speaker 3: of a mildly incremental increase in revenue on why you.
[30:14] Speaker 2: Can put a wind farm up on a farm, but still.
[30:17] Speaker 3: You continue to farm it. Yeah, on a seven hundred
[30:19] Speaker 3: acre farm. We have one in western Indiana has seven
[30:23] Speaker 3: wind turbines, they might take up twenty acres total between
[30:26] Speaker 3: the turbine and the roads. The rest of it we
[30:28] Speaker 3: continue to rent, so that rent from those wind turbans,
[30:31] Speaker 3: it's incremental. It might increase twenty or thirty basis points
[30:34] Speaker 3: over your farm rent, so we'll take it, but it's
[30:38] Speaker 3: not going to change your life. When we started doing
[30:40] Speaker 3: things like solar so solar, instead of seeing twenty or
[30:45] Speaker 3: thirty basis points, you're seeing on an option period maybe
[30:48] Speaker 3: a three to five x.
[30:50] Speaker 4: The income reach.
[30:51] Speaker 3: Really, so if you think back to we're buying land
[30:54] Speaker 3: at a four and a half to five and a
[30:55] Speaker 3: half percent income over the course of five years during
[30:58] Speaker 3: an option period, if it were to go to and
[31:00] Speaker 3: now we're generating fifteen to twenty twenty five percent annualized income.
[31:05] Speaker 3: So we like that, but in that case, it's taking
[31:07] Speaker 3: the whole footprint of the land. And if when we
[31:09] Speaker 3: buy a farm, we're just underwriting it as an agricultural property,
[31:13] Speaker 3: farm rents capex, what type of return do we think
[31:16] Speaker 3: we can earn over time, and we're targeting kind of
[31:18] Speaker 3: that eight to ten percent net through a cycle on farmland.
[31:22] Speaker 3: But then once we own the property and as you
[31:24] Speaker 3: aggregate properties over time. Maybe we started with a couple
[31:28] Speaker 3: hundred acres ten or twelve years ago, but now in
[31:31] Speaker 3: a township, we now own two thousand acres and it's
[31:33] Speaker 3: just been all of these incremental bolton acquisitions. Now that
[31:38] Speaker 3: has probably more interest from some of the developers on
[31:41] Speaker 3: the solar side or for other things too that can
[31:43] Speaker 3: be even much higher revenue or value, But we always
[31:47] Speaker 3: fall back on if it's just a farm, that's what
[31:49] Speaker 3: we underwrote, and we're happy with that, and we'll continue
[31:52] Speaker 3: to aggregate those properties over time. We have over five
[31:55] Speaker 3: hundred today. There are years where we'll do thirty or
[31:58] Speaker 3: forty closing or transactions to invest eighty or one hundred million.
[32:03] Speaker 3: Most institutional investors would never do that, but we've really
[32:07] Speaker 3: decided that that's where you can add a lot of
[32:09] Speaker 3: alpha on the acquisition side by doing these boltons at
[32:12] Speaker 3: a discount to what that Like you said, it's a
[32:15] Speaker 3: very finance worthy strategy. It's just being applied to an
[32:19] Speaker 3: asset class that usually don't see it.
[32:21] Speaker 2: You mentioned leases. When I think of a lease, I
[32:24] Speaker 2: think of either an apartment lease for a year or two,
[32:27] Speaker 2: or my office lease here in New York for ten years.
[32:31] Speaker 2: How long does the average farmer lease their land for
[32:38] Speaker 2: or lease your land for if they want to farm
[32:41] Speaker 2: a crop.
[32:42] Speaker 3: Yeah, so we try to target three to five year leases,
[32:44] Speaker 3: and I'd say three is the overwhelming majority. Given that
[32:48] Speaker 3: our farms are mostly growing row crops. You can see
[32:51] Speaker 3: three years on the Board of Trade. You have transparency
[32:54] Speaker 3: to wear our prices. So farmers if they want to hedge,
[32:57] Speaker 3: if they want to think about selling apart to their
[33:00] Speaker 3: crop into the future, they can do that and we
[33:03] Speaker 3: can all agree, okay, over the next three years, this
[33:05] Speaker 3: is what that rental income will be. But when you
[33:08] Speaker 3: think about other like across a farmer's portfolio, I mentioned
[33:12] Speaker 3: they own land and they intend to own that forever,
[33:16] Speaker 3: you know, that's how they think about it. And they
[33:18] Speaker 3: rent our land and those are usually three year leases,
[33:21] Speaker 3: but then they rent a lot of land from other people.
[33:23] Speaker 3: Those other people, even if a farmer's been operating that
[33:26] Speaker 3: land for thirty years, it's usually thirty one year leases.
[33:30] Speaker 3: So making decisions because the land owner, I'm not going
[33:33] Speaker 3: to say they're not sophisticated, but they're unwilling to do
[33:36] Speaker 3: a multi year lease because they want to have the
[33:38] Speaker 3: optionality to sell the property free and clear of a
[33:40] Speaker 3: lease if they decide they want to sell it. So
[33:44] Speaker 3: usually when farmers look to us, they're saying, well, we
[33:46] Speaker 3: want to add a new combine or a tractor, or
[33:49] Speaker 3: make these overhead or hiring or infrastructure decisions. They actually
[33:53] Speaker 3: view a three year lease as a long term lease.
[33:55] Speaker 3: In the farmland space, we have some leases that'll go
[33:59] Speaker 3: eight or ten years if they're growing more specialty crops.
[34:02] Speaker 3: So we have about twenty percent of our portfolio that
[34:05] Speaker 3: generates higher revenue because they're growing things like potatoes for
[34:09] Speaker 3: potato chips, processing tomatoes. The kind of highest quality mint
[34:14] Speaker 3: you can grow in the world is in the Midwest,
[34:16] Speaker 3: so we grow that on our properties, and that requires
[34:19] Speaker 3: a more diverse rotation and a longer planning for the farmer.
[34:24] Speaker 3: So we'll allow a longer lease in those instances. And
[34:27] Speaker 3: we allow that because they're paying us a stronger rent.
[34:29] Speaker 2: Huh. Really kind of fascinating. I want to talk about scale.
[34:33] Speaker 2: You mentioned boltons and a lot of things. I'm kind
[34:36] Speaker 2: of fascinated by the scale. And the question I wanted
[34:42] Speaker 2: to ask is, are each farm that comes up for sale,
[34:47] Speaker 2: do they have the same or different value for different acquires,
[34:52] Speaker 2: Like I'm going to assume if you're the adjacent farm,
[34:56] Speaker 2: that next form might be more valuable. You spend a
[34:58] Speaker 2: lot of money on combine and tractors. Hey, if you
[35:01] Speaker 2: can use it on five hundred acres instead of three hundred,
[35:05] Speaker 2: your cost par acres should go down. Of course, what's
[35:09] Speaker 2: the impact on scaling up? And what's a big farm?
[35:12] Speaker 2: Is one hundred acres big? Is a thousand acres big?
[35:15] Speaker 4: Yeah? I mean it's all relative.
[35:16] Speaker 3: But to your point about are there different values for
[35:20] Speaker 3: different buyers. Absolutely, even if two buyers both intend to
[35:24] Speaker 3: farm it, there are absolutely differences in how someone will
[35:28] Speaker 3: value it. In some cases on the same land, that
[35:31] Speaker 3: comes down to what crop do you intend to grow?
[35:33] Speaker 3: So I had talked briefly about specialty crops, but if
[35:37] Speaker 3: you're if there's a farm in northern Indiana with irrigation,
[35:40] Speaker 3: that comes up. If the tenant we're looking at wants
[35:42] Speaker 3: to grow corn and soybeans, they're going to be able
[35:45] Speaker 3: to pay us one rent. If the tenant we're talking
[35:47] Speaker 3: to would grow popcorn and processing tomatoes or potatoes, they
[35:52] Speaker 3: can pay us almost double this rent on the same land.
[35:55] Speaker 3: So when we look at farmers we're trying to identify
[35:58] Speaker 3: which farmer can generate the high revenue, has a strong
[36:01] Speaker 3: balance sheet, operates with the least amount of risk so
[36:05] Speaker 3: that our rent will be paid every year in the spring.
[36:07] Speaker 3: But there's it's really important when you look at land
[36:11] Speaker 3: to determine what's the highest and best use, even just
[36:14] Speaker 3: on the agriculture side. So when you think of every
[36:17] Speaker 3: farmer would love to have thousand acre blocks of land
[36:19] Speaker 3: in the Midwest, that's hard because the history of ownership
[36:22] Speaker 3: was the.
[36:23] Speaker 4: Homestead Act, so it's forty acre blocks.
[36:25] Speaker 3: So within our portfolio, we have forty acre farms, and
[36:28] Speaker 3: we don't love doing those transactions, but if we can
[36:31] Speaker 3: bolt them onto an existing property with an existing lease
[36:34] Speaker 3: and the same farmer, that's kind of a no brainer.
[36:37] Speaker 3: But our largest farms in southwestern Georgia. It's seven thousand
[36:40] Speaker 3: contiguous acres, so that's about ten square miles in one piece.
[36:43] Speaker 3: It's all irrigated and the history of ownership there is
[36:46] Speaker 3: plantations out west, the history of ownerships ranches, so these
[36:50] Speaker 3: larger tracts of land, you tend to see more institutional
[36:53] Speaker 3: investment in those areas along with permanent crops, and there's
[36:57] Speaker 3: a lot of reasons. People will tell you it's around
[37:00] Speaker 3: scale and efficiency. In some cases, I think it's just
[37:03] Speaker 3: you can write a bigger check. If I need to
[37:05] Speaker 3: deploy fifty million at once, I can do it better
[37:07] Speaker 3: in those areas because the farms are just bigger, where
[37:10] Speaker 3: it's a permanent crop that it's one hundred or two
[37:12] Speaker 3: hundred thousand dollars an acre, so I can deploy capital
[37:15] Speaker 3: more quickly. For us, it's harder to gain that scale,
[37:19] Speaker 3: but it really starts with that tenant network. So those
[37:22] Speaker 3: one hundred and seventy farmers we work with today, they
[37:25] Speaker 3: farm our one hundred and seventy thousand acres or one
[37:27] Speaker 3: hundred and eighty thousand acres. They own collectively about two
[37:31] Speaker 3: hundred and fifty thousand acres that I don't expect they
[37:33] Speaker 3: will sell, but that's kind of what they own. But
[37:36] Speaker 3: they rent over seven hundred and fifty thousand acres from
[37:39] Speaker 3: other people, and those other people are those estates, trust
[37:42] Speaker 3: non farming airs. And when those folks want to sell,
[37:45] Speaker 3: usually they don't have a public auction. Usually it's a
[37:47] Speaker 3: private transaction. The first person they call is their farm tenant.
[37:51] Speaker 3: And while we would love if our fund was closed.
[37:53] Speaker 3: We would love to see prices just continue to escalate
[37:57] Speaker 3: up forever, you know.
[37:59] Speaker 4: Over the time.
[38:00] Speaker 2: They're also on both sides.
[38:01] Speaker 4: Yeah, we like cycles.
[38:02] Speaker 3: So when farmers have really strong balance sheets, like in
[38:05] Speaker 3: twenty twenty one and twenty twenty two, they were probably
[38:08] Speaker 3: not passing on as many of those purchase options to us.
[38:11] Speaker 3: But now we've we're in our third year of lower
[38:14] Speaker 3: commodity prices. Farmers have to be careful about how much
[38:17] Speaker 3: working capital they're going to liquidate to go buy a
[38:21] Speaker 3: long term masse. And if it's a very strategic farm
[38:24] Speaker 3: to them, they're going to try to buy it very
[38:25] Speaker 3: close to home. But if it's something they're willing to
[38:28] Speaker 3: travel for and they're currently farming, and as much as
[38:31] Speaker 3: they'd like to grow their acres to that point about
[38:33] Speaker 3: efficiency you mentioned, they don't want to lose acres. So
[38:36] Speaker 3: if a farmer farms five thousand acres, if one of
[38:40] Speaker 3: their landlords who owns five hundred cells and they don't,
[38:43] Speaker 3: they're either not able to buy it or someone that
[38:45] Speaker 3: we're partnering with them on. If they're not able to
[38:49] Speaker 3: buy it, then they just lose those acres and they
[38:51] Speaker 3: immediately become over capitalized, every other acre becomes more expensive
[38:55] Speaker 3: to farm, and so they think about it in terms
[38:58] Speaker 3: of protecting acres and growth. When you say, well, why
[39:02] Speaker 3: would they partner with someone like us? So when we
[39:04] Speaker 3: look at farms that would make sense to add to
[39:07] Speaker 3: the portfolio, in some cases we'd pay a little more
[39:09] Speaker 3: because it's a strategic farm that's close by, but we
[39:12] Speaker 3: say no. Probably twenty nine times out of thirty, we're
[39:16] Speaker 3: at a public auction. The hit rate is low, and
[39:19] Speaker 3: while we'd like that to be higher. That's the investment discipline.
[39:21] Speaker 3: We will lose sometimes by forty or fifty percent above
[39:25] Speaker 3: our reserve price.
[39:26] Speaker 2: Back to Graham Dot absolutely you mentioned ranch ranching. We've
[39:30] Speaker 2: been mostly talking about farming. When I think of ranches,
[39:34] Speaker 2: I think of cattle farms, horse farms, sheep. What do
[39:37] Speaker 2: these ranchers do? How much of the assets you own
[39:41] Speaker 2: are ranches versus farms? Whereas there're a mix, Some do
[39:44] Speaker 2: a little bit of both.
[39:45] Speaker 4: Some can do both.
[39:46] Speaker 3: Not our farm, so our portfolio is exclusively farming, not
[39:51] Speaker 3: ranching acres. You tend to see those ranching acres, you know,
[39:54] Speaker 3: if you think of what's the highest and best use
[39:57] Speaker 3: if you could grow amongst row crops, even corn the
[40:00] Speaker 3: highest revenue, then soybeans then we I mean cotton would
[40:04] Speaker 3: be up there as well. But as you look kind
[40:07] Speaker 3: of down the value cycle, ranching would be very low
[40:10] Speaker 3: because you're you're just not generating much rent. So it's
[40:13] Speaker 3: more marginal land that's used for that or larger tracks
[40:16] Speaker 3: of land. Typically, Like one of the big farmland owners
[40:19] Speaker 3: is the Mormon Church. They're also one of the five
[40:22] Speaker 3: largest cattle feeders in the country, so they own a
[40:24] Speaker 3: lot of ranch land, so they're actually raising.
[40:27] Speaker 2: Cattle and then sending it to their own cattle.
[40:29] Speaker 3: Yeah, and they'll graze the cattle and then eventually, you know,
[40:32] Speaker 3: take that all the way to market. That's the type
[40:34] Speaker 3: of vertical integration you'll see in some areas and row
[40:37] Speaker 3: crops you just don't see that. We like to identify
[40:40] Speaker 3: tenants we're working with that if they have a dairy,
[40:43] Speaker 3: so they need the land to feed the cows, they
[40:45] Speaker 3: need the land for their nutrient management program. Those tenants
[40:48] Speaker 3: are willing to pay more for farms if it's a
[40:51] Speaker 3: strategic farm that's close by because they can't travel.
[40:54] Speaker 4: All over the place.
[40:55] Speaker 3: But a lot of our tenants they might have a
[40:57] Speaker 3: home base that kind of looks like the center of
[40:59] Speaker 3: this table, and the radius that they'll travel. Being willing
[41:03] Speaker 3: to farm, they'll rent in these other areas if they
[41:06] Speaker 3: can find enough acres to have scale, because ultimately, every
[41:09] Speaker 3: time a son or daughter wants to come back to
[41:11] Speaker 3: the farm to help increase that family business, you can't
[41:15] Speaker 3: just slice the pie more ways. You have to grow
[41:17] Speaker 3: the pie. And I mentioned earlier the amount of total
[41:20] Speaker 3: acres in the US is going down every year. And
[41:23] Speaker 3: in the Midwest you don't have problems of aridity or erosion,
[41:27] Speaker 3: but you have a lot of development pressure coming in.
[41:29] Speaker 3: The cities are expanding, manufacturings expanding, So there are acres
[41:33] Speaker 3: that farmers lose for those reasons every year.
[41:37] Speaker 2: So it seems absurd to talk about farmland and artificial intelligence.
[41:43] Speaker 2: But there are two different ways I want to go
[41:45] Speaker 2: with this. The first is these giant data centers they
[41:51] Speaker 2: pay a lot more. They are a higher spending buyer
[41:55] Speaker 2: or renter than say someone growing row crops. What's relationship
[42:00] Speaker 2: between farmland and AI and big infrastructure investing.
[42:05] Speaker 3: Yeah, I mean we're seeing it firsthand now in the Midwest.
[42:09] Speaker 3: The amount of additional building that's happening around data centers
[42:14] Speaker 3: is unbelievable. And the amount of capital that's being invested
[42:17] Speaker 3: in these areas like Ohio, Indiana, Michigan, Illinois around data
[42:22] Speaker 3: center development, it's really staggering when you think about it.
[42:25] Speaker 3: So there's just outside of South Indiana two very large
[42:29] Speaker 3: data center projects that I think each is investing between
[42:32] Speaker 3: nine and eleven billion on these data centers. And the
[42:35] Speaker 3: real estate price, even if it's I think our average
[42:38] Speaker 3: cost per acre across our portfolio is about eight thousand dollars.
[42:41] Speaker 3: You see data center prices anywhere from one hundred to
[42:44] Speaker 3: three hundred thousand dollars in.
[42:45] Speaker 4: A twelve at least, if not more.
[42:48] Speaker 2: And who are these? Who are the companies that are
[42:49] Speaker 2: these big buyers? All the big names we know.
[42:51] Speaker 4: Yeah, it's the big ones that are out there.
[42:53] Speaker 2: I think you see a little Microsoft. Who else is.
[42:57] Speaker 3: Groups like Amazons, Like what you're finding now is a
[43:02] Speaker 3: lot less hoteling space for data centers and they're all
[43:05] Speaker 3: single user and it seems like they're going after the
[43:08] Speaker 3: best locations, which would be large tracts of land close
[43:12] Speaker 3: to infrastructure. So you want natural gas, you need three
[43:15] Speaker 3: phase power with capacity on the line. You need fiber
[43:18] Speaker 3: lines or rail access to run fiber. You need water,
[43:22] Speaker 3: and while there are multiple ways for cooling water, whether
[43:26] Speaker 3: it's closed loop or open loop, is a big part
[43:27] Speaker 3: of all of it. So what you tend to find
[43:31] Speaker 3: are a lot of these old rust belt areas, but
[43:35] Speaker 3: kind of virgin farmland is the best candidate for it,
[43:38] Speaker 3: and you have these single users that are going after
[43:42] Speaker 3: that land. So in our portfolio, we've aggregated large properties
[43:46] Speaker 3: over time, and there seems to be a lot of
[43:47] Speaker 3: interest around that because it's just there are very few
[43:51] Speaker 3: of these places where you can do it. It's not
[43:53] Speaker 3: like even a distribution center that next to every exit
[43:56] Speaker 3: on the highway you could justify putting one there. You
[43:59] Speaker 3: need all the energy and water infrastructure and fiber infrastructure,
[44:03] Speaker 3: and you need capacity. So every new and there aren't
[44:06] Speaker 3: a lot of new natural gas fired power plants that
[44:09] Speaker 3: get built, but when one gets built, it seems like
[44:11] Speaker 3: a logical kind of co user of that power would
[44:15] Speaker 3: be one of them.
[44:16] Speaker 2: I was gonna say, what about colocation where you just
[44:18] Speaker 2: run ant gas line and build your own electrical facility
[44:21] Speaker 2: adjacent to one of these power plants.
[44:23] Speaker 3: I feel like some of that is definitely happening and
[44:25] Speaker 3: will continue. I mean, ultimately some of these data centers
[44:28] Speaker 3: will all be powered by modular nukes.
[44:31] Speaker 4: When when you get down to it, you need is
[44:33] Speaker 4: that what we're talking potentially?
[44:35] Speaker 3: Yeah, I mean the idea of when a data center
[44:37] Speaker 3: is going in or even a big manufacturing facility. Sometimes
[44:40] Speaker 3: you'll see colocation of solar, and while solar has a
[44:44] Speaker 3: lot of benefits, it's not going to power something like that.
[44:47] Speaker 3: That's more just I think for credits to sell into
[44:49] Speaker 3: the grid. I mean, we have three mile island potentially
[44:52] Speaker 3: coming back on, so there's a lot of different options.
[44:55] Speaker 3: And I think across states like New York State, they've
[44:58] Speaker 3: closed down, some nuclear facilities are consolidated.
[45:02] Speaker 2: Well sure them never opened here. They spent billions over
[45:05] Speaker 2: twenty years. There was no escape route. Bid islands are
[45:10] Speaker 2: not great places for nuclear facilities. But you know, you
[45:13] Speaker 2: see countries like France ninety plus percent of their power
[45:16] Speaker 2: generation comes from nuclear.
[45:19] Speaker 3: Right, And the hard thing when you think about power,
[45:21] Speaker 3: I mean I kind of laugh. I had two siblings
[45:24] Speaker 3: that both went to Cornell, so I've been to Ithaca
[45:26] Speaker 3: quite a bit. We own farms in upstate New York,
[45:28] Speaker 3: and every time I drive from our farms there down
[45:31] Speaker 3: to our family farm in northeastern Pennsylvania. You'll drive through
[45:34] Speaker 3: parts of New York State that we'll say no industrial.
[45:37] Speaker 3: You'll see signs that say no industrial, soular, no wind farms,
[45:39] Speaker 3: no fracking, no nuclear, but they all turn on their lights.
[45:43] Speaker 3: So we have this really perverse view out there that
[45:49] Speaker 3: you could call it nimbiism, you can call it whatever
[45:51] Speaker 3: you want, but we need more of everything.
[45:53] Speaker 2: More power for sure.
[45:54] Speaker 3: Yeah, if you look at a there's a few great
[45:56] Speaker 3: grafts out there that show kind of the history of
[45:59] Speaker 3: con umption for power and the same amount of coal
[46:02] Speaker 3: that's been used throughout history.
[46:06] Speaker 4: This year will be the year that the most coal
[46:08] Speaker 4: is used.
[46:08] Speaker 3: The most peat that's ever been burned or wood is
[46:11] Speaker 3: happening this year, the most oil produced or burned, natural gas.
[46:14] Speaker 3: The only energy source that's ever gone down really is
[46:17] Speaker 3: nuclear and that was out of the out of regulation.
[46:21] Speaker 2: Is there's a lot of fears around it.
[46:23] Speaker 3: And so if you look at what do we need,
[46:25] Speaker 3: there's no energy in my opinion, there's no energy transition
[46:27] Speaker 3: that whatever happens is we need more of everything.
[46:30] Speaker 2: So that's really fascinating. I saw a chart I forget
[46:34] Speaker 2: where the biggest producer of solar energy in the United States, Walmart,
[46:40] Speaker 2: all their distribution centers, all their superstores, especially in the South.
[46:45] Speaker 2: They just say, we have dead space on the roof
[46:47] Speaker 2: loaded up with solar, and they're not only subsidizing their
[46:51] Speaker 2: own power consumption, they're getting credits for selling it back
[46:54] Speaker 2: to the grid.
[46:55] Speaker 3: Yeah, I think it makes a ton of sense, especially
[46:57] Speaker 3: if you're building greenfield when you can. Actually it's tough
[47:00] Speaker 3: to retrofit things for solar. And even when we look
[47:03] Speaker 3: at farmland that goes to the idea of these little
[47:07] Speaker 3: community solar gardens, I don't think is very scalable. You
[47:10] Speaker 3: tend to see more industrial sized solar fields, and it's
[47:14] Speaker 3: you know, from the landowner standpoint, or the farmers standpoint,
[47:17] Speaker 3: or the the If a farmer is the owner, you
[47:20] Speaker 3: know they're interested in the highest and best use. So
[47:23] Speaker 3: what you tend to see is we have farm tenants
[47:25] Speaker 3: that they sell land for development all the time. They
[47:28] Speaker 3: you know, these farmers are very sophisticated, they're CEOs. This
[47:32] Speaker 3: has been happening for generations where someone will sell land
[47:35] Speaker 3: that's close to town for a very high price and
[47:38] Speaker 3: then they'll move twenty miles farther out and buy three
[47:41] Speaker 3: times the amount of land and set up shop there.
[47:43] Speaker 3: So while the idea of a farmer moving always seems,
[47:47] Speaker 3: you know, really hard to believe, this has been happening forever.
[47:50] Speaker 3: The western suburbs of Chicago have extended and extended and extended.
[47:54] Speaker 3: And farmers are you know, I consider them dumb as
[47:56] Speaker 3: a fox.
[47:56] Speaker 4: Like they'll they'll sell for see that as a farmer, Yeah,
[48:00] Speaker 4: I know, it's it's interesting.
[48:02] Speaker 3: They'll sell for a very high price, and when that
[48:04] Speaker 3: development doesn't happen, they'll buy it back for less and
[48:06] Speaker 3: they'll wait for the next round of development and sell
[48:08] Speaker 3: it again.
[48:09] Speaker 2: So that's funny.
[48:10] Speaker 3: So, you know, some of the competition we see when
[48:12] Speaker 3: we're buying farms, it's not just farmers that had profitable years.
[48:16] Speaker 3: It's farmers that have ten thirty one exchange money because
[48:19] Speaker 3: they sold land to a data center.
[48:21] Speaker 2: Or they have like three years to reinvest before they
[48:24] Speaker 2: get hit with taxes something.
[48:25] Speaker 3: Yeah, it's about eighteen months and they've identify properties, but
[48:28] Speaker 3: they have to go out there and reinvest it and
[48:31] Speaker 3: kind of like like to keep their cost basis. And
[48:34] Speaker 3: farmers are really good at you know, figuring their way
[48:38] Speaker 3: around these tax codes, and you know, good for them.
[48:40] Speaker 3: And I think that's a lot of the competition we
[48:42] Speaker 3: see are ten thirty one buyers because there's just big
[48:45] Speaker 3: dollars getting thrown around.
[48:47] Speaker 2: They have no choice, they have to get deployed otherwise.
[48:49] Speaker 4: Yeah, and they want to continue to buy farm land.
[48:51] Speaker 3: And a lot of farmers, I mean it's really interesting
[48:54] Speaker 3: when you talk to them and you'd say, well, what's
[48:56] Speaker 3: your dream scenario. And one of our tenants who sold
[48:59] Speaker 3: some land to a solar company and they were selling
[49:01] Speaker 3: land for a data center. I said, well, what's your
[49:04] Speaker 3: goal and they said, well, we want to continue to farm.
[49:06] Speaker 3: We just want to do it debt free. So it's
[49:08] Speaker 3: not like they just want to buy a place in Florida.
[49:10] Speaker 3: They'll have one, but they want to continue to farm,
[49:13] Speaker 3: so they want to go buy more.
[49:14] Speaker 2: Farm Really interesting. Coming up, we continue our conversation with
[49:18] Speaker 2: Brandon Zick, chief investment officer of Sarah's Farms, discussing the
[49:23] Speaker 2: state of farmland investing. Today. I'm Barry Ridults. You're listening
[49:28] Speaker 2: to Masters in Business on Bloomberg Radio. I'm Bury Ridults.
[49:44] Speaker 2: You're listening to Masters in Business on Bloomberg Radio. My
[49:48] Speaker 2: extra special guest this week is Brandon Zick. He's chief
[49:51] Speaker 2: investment officer of Sarah's Farms. They are a specialty fund
[49:55] Speaker 2: investing in farms and farmland. We haven't really talked about
[50:00] Speaker 2: the risk of farming. And a couple of my favorite
[50:04] Speaker 2: YouTube shows. So I'm a car guy. I like Harry's
[50:08] Speaker 2: Garage and his adjacent channel is Harry's Farm, and watching
[50:12] Speaker 2: him do this stuff, you realize what a difficult job
[50:16] Speaker 2: farming is, especially sometimes it's drought, sometimes it's too much rain,
[50:22] Speaker 2: it's so expensive and so much of your product is
[50:27] Speaker 2: totally out of your control. And then if you liked
[50:31] Speaker 2: top Gear, there's an Amazon show called Clarkson's Farm and
[50:35] Speaker 2: it makes you realize, God, this is an impossible business.
[50:39] Speaker 2: At least in the UK, farmers there having a really
[50:42] Speaker 2: hard time. So let's talk a little bit about the
[50:45] Speaker 2: risks of farming and the risk of investing in farming.
[50:50] Speaker 2: What are the possible downsides?
[50:52] Speaker 4: Yeah, so on. Being a farmer is a very difficult business.
[50:56] Speaker 3: I mean, there are so many different risk factors and
[50:59] Speaker 3: so many decisions points that you can make that completely
[51:02] Speaker 3: can impact your bottom line in a material way. Not
[51:05] Speaker 3: just what crop you grow and when you plant, but
[51:07] Speaker 3: when you sell it, how you sell it, who you
[51:10] Speaker 3: sell it to, how you store your grain, and all
[51:13] Speaker 3: these things can change year to year and to your point,
[51:16] Speaker 3: and this kind of goes back to there hasn't been
[51:19] Speaker 3: a lot of institutional roll up yet on the land side,
[51:22] Speaker 3: but the people that sell inputs to farmers, and the
[51:26] Speaker 3: inputs can be seed, fertilizer, equipment, whatever it may be.
[51:29] Speaker 3: And the buyers of their crop, the large grain buyers
[51:32] Speaker 3: out there, your bungies and adms and cargills, they all
[51:36] Speaker 3: have a lot of pricing power. Your average farmer doesn't
[51:39] Speaker 3: have any pricing power, so they are a price taker
[51:41] Speaker 3: on the input side. There are a price taker on
[51:43] Speaker 3: the crop side. So part of our value add for
[51:47] Speaker 3: investors is we try to identify farmers that are the
[51:50] Speaker 3: most well positioned to have whatever pricing power they can get.
[51:53] Speaker 3: So they have to have scale so that when they're
[51:56] Speaker 3: buying inputs that they can go out and negotiate the
[51:59] Speaker 3: best price possible. You want farmers that can store their
[52:02] Speaker 3: grain so they're not selling it all at harvest. They
[52:05] Speaker 3: want to be able to sell it into the spring
[52:06] Speaker 3: when other people don't have the crop. Yeah, so hopefully
[52:10] Speaker 3: you get that positive carry. So we try to identify
[52:12] Speaker 3: those folks. But when you're looking at investing in farmland,
[52:17] Speaker 3: what are the downsides? Well, there's certain just climate issues.
[52:21] Speaker 3: So if you're close to a river and it floods,
[52:23] Speaker 3: that's a problem. If you have very sandy soils and
[52:26] Speaker 3: it doesn't rain and you have drought, that's a problem.
[52:29] Speaker 3: So we like to have farms where we can do
[52:32] Speaker 3: some of that capax like adding irrigation or adding drainage,
[52:35] Speaker 3: so that you can help manage some of those risks.
[52:37] Speaker 2: How do you manage around weeds, past bugs, and disease,
[52:41] Speaker 2: because there are a lot of dangerous diseases that literally
[52:45] Speaker 2: come in on the wind.
[52:46] Speaker 3: Yeah, and that's I mean part of what the way
[52:49] Speaker 3: we've constructed this portfolio. I mean, Perry was really prescient
[52:53] Speaker 3: when he thought about the Great Lakes the Midwest. It
[52:55] Speaker 3: wasn't just because he was from Wisconsin or he was
[52:58] Speaker 3: traveling to the Midwest. Because in the Midwest we have
[53:01] Speaker 3: the best soil, some of the best water resources. And
[53:04] Speaker 3: what I mean by that is these recharging aquifers. The
[53:07] Speaker 3: Great Likes aquifers, but also it rains during the crop season.
[53:10] Speaker 3: So the cheapest form of irrigation is still just rains.
[53:13] Speaker 3: You don't have to turn anything on or do anything.
[53:15] Speaker 3: But there are parts of the South and the West
[53:17] Speaker 3: where it doesn't rain when you're growing a crop, or
[53:19] Speaker 3: it's very sporadic, so you can't really grow a crop
[53:22] Speaker 3: without irrigation. In the Midwest, it's more supplemental. So from
[53:25] Speaker 3: a risk management standpoint, it starts with good soil, good water.
[53:30] Speaker 3: We like good infrastructure so you can move your crops
[53:32] Speaker 3: around you Also, and I had mentioned earlier, we like
[53:36] Speaker 3: areas where it's a highly competitive market for rent because
[53:38] Speaker 3: we're renting ground. We want to have lots of farmers
[53:41] Speaker 3: out there that are all looking to grow, they're all
[53:44] Speaker 3: looking to add acres, and so that makes a very
[53:46] Speaker 3: competitive market from the rental side. Some of the stuff
[53:50] Speaker 3: that you know, investing in the US isn't a risk,
[53:53] Speaker 3: but there are a lot of people and a lot
[53:55] Speaker 3: of managers that invest outside of the US. Currency risk
[53:58] Speaker 3: is a big deal, Sovereign risk is a big deal.
[54:01] Speaker 3: I mean, there's been many investors that have had more
[54:03] Speaker 3: than their handslapped for buying land in South America, particularly
[54:06] Speaker 3: in Brazil, that they found out the group they bought
[54:09] Speaker 3: it from might not have been the owner. And there's
[54:11] Speaker 3: a lot of things that we think transparency is key.
[54:15] Speaker 3: But we we really like title insurance, we like rule
[54:19] Speaker 3: of law. So we invest in the US, We invest
[54:21] Speaker 3: in areas that are very friendly to farmers. And so
[54:25] Speaker 3: that's we don't own any land in California today. Maybe
[54:28] Speaker 3: we will at some point. I think that's a little
[54:30] Speaker 3: bit more difficult from a regulatory environment, and water is
[54:34] Speaker 3: something that we view as longer term. You know, water
[54:37] Speaker 3: is going to be a gating issue or a gating
[54:39] Speaker 3: factor in a lot of areas, and you're seeing not
[54:42] Speaker 3: just regulation but restriction all across the country. So we
[54:45] Speaker 3: want to be in areas where water is plentiful. It's
[54:47] Speaker 3: one thing to have a paper water, right, It's another
[54:49] Speaker 3: to have water availability.
[54:51] Speaker 4: And that's what we focus on.
[54:52] Speaker 2: So last question, last two questions before we get to
[54:56] Speaker 2: our favorite questions. We ask all our guests, let's look
[54:59] Speaker 2: out five or ten years. What are some of the
[55:02] Speaker 2: biggest opportunities in farmland and what are some of the
[55:06] Speaker 2: potential dislocations and risks you're considering.
[55:10] Speaker 3: Yeah, so in terms of opportunity, I mean, we think
[55:13] Speaker 3: there's just so much capacity out there to continue to
[55:16] Speaker 3: invest in the current markets where we are today. But
[55:19] Speaker 3: within the US, we think, you know, the world's going
[55:23] Speaker 3: to continue to need food as water becomes more expensive
[55:26] Speaker 3: in other parts of the US. So California as an example,
[55:29] Speaker 3: or Arizona as an example, a lot of those crops
[55:33] Speaker 3: that people want to have the USA stick around, so
[55:36] Speaker 3: vegetables produce, they're going to be grown more, at least
[55:40] Speaker 3: seasonally in areas where they're cheaper to grow, and every
[55:45] Speaker 3: or so a lot of that today, a lot of
[55:47] Speaker 3: produces grown to Mexico, and that's labor's the biggest issue.
[55:51] Speaker 4: Labor there is next to nothing.
[55:53] Speaker 3: So if people don't care, if they're blueberries or if
[55:57] Speaker 3: they're watermelons, say USA, and then it will all come
[56:01] Speaker 3: from Mexico. If people don't care, because it's just from
[56:03] Speaker 3: a cost of production standpoint, it's so much less. But
[56:06] Speaker 3: in California, the cost of water. So let's say you
[56:10] Speaker 3: have a well that you need to pump a thousand
[56:12] Speaker 3: gallons a minute to grow celery. That might cost a
[56:16] Speaker 3: couple hundred thousand dollars a year. The cost of the
[56:18] Speaker 3: well itself is a million dollars to grow that same salery,
[56:21] Speaker 3: maybe less of it because you're not growing year round.
[56:23] Speaker 3: In Michigan, that well costs fifty thousand dollars and it
[56:26] Speaker 3: costs two hundred dollars a year to operate. So even
[56:29] Speaker 3: if the labor cost was same same, the cost of
[56:31] Speaker 3: productions much less. And every crop in the US, almost
[56:36] Speaker 3: every crop moves west to east toward the population center,
[56:39] Speaker 3: So if you're east of the Mississippi, you've cut a
[56:41] Speaker 3: huge freight cost off of the cost of production too.
[56:44] Speaker 2: So it's best straight to the west east coast and
[56:47] Speaker 2: much cheaper than coming up from Mexico.
[56:49] Speaker 3: Yes, and I think over time, you know, we're going
[56:51] Speaker 3: to see more and more of that high revenue production
[56:53] Speaker 3: move there, So we view that as an opportunity. A
[56:56] Speaker 3: risk is always does the cost of labor out technology
[57:00] Speaker 3: growth We've seen and part of the reason we like
[57:03] Speaker 3: row crops are because there's more technology being implemented a
[57:07] Speaker 3: much less labor.
[57:08] Speaker 2: I'm glad you mentioned that because one of the things
[57:10] Speaker 2: that was fascinating on both those shows were the GPS
[57:15] Speaker 2: driven tractors. So if you're going to run a combine,
[57:18] Speaker 2: you're going to lay fertilizer down, you're going to harvest.
[57:22] Speaker 2: These things essentially drive themselves long before TESLA because doing
[57:27] Speaker 2: that efficiently is a giant money saver. Talk about the
[57:32] Speaker 2: technology that's making farmland more productive.
[57:34] Speaker 3: Yeah, I mean technology, I would say, and agriculture is
[57:37] Speaker 3: moving as fast as anywhere, and it's really because there
[57:40] Speaker 3: are real tactical issues around labor's too expensive, the cost
[57:44] Speaker 3: of inputs has gone up. So to talk to our
[57:47] Speaker 3: farmers and that's a big part of our underwriting is
[57:49] Speaker 3: we want farmers who are using the latest technology. Whereas
[57:52] Speaker 3: in the past, if someone was planning a crop, they
[57:55] Speaker 3: would broadcast equally across the entire field, the fertilizer, the
[57:59] Speaker 3: seas and when you look at actually some of these farms,
[58:03] Speaker 3: the soil types and quality throughout a farm can be
[58:06] Speaker 3: highly diverse. You could have five to one hundred different
[58:09] Speaker 3: soil types. So the soil mapping that they can do
[58:12] Speaker 3: with technology to.
[58:13] Speaker 2: Them see a satellite right via satellite.
[58:15] Speaker 3: And they also use probes to get out there, trust
[58:18] Speaker 3: but verify you go out there and do that, and
[58:20] Speaker 3: then they can use variable rate applications of fertilizer and seeds.
[58:25] Speaker 3: So in an acre of ground of really high quality
[58:28] Speaker 3: black dirt, they might plant thirty five thousand seeds per acre,
[58:33] Speaker 3: but then in the sandy or lower quality soil, it's
[58:36] Speaker 3: only twenty thousand and achieve the same yield. So what
[58:41] Speaker 3: you're doing is saving money on the seed, applying fertilizer
[58:45] Speaker 3: so that it's not running off. And farmers don't want
[58:47] Speaker 3: waste either, because that's money that's just rolling away.
[58:50] Speaker 2: And this isn't just satellite. It's satellite, it's drone. It's
[58:53] Speaker 2: a lot of high tech tools that you don't think of.
[58:57] Speaker 2: You think of picks and shovels with farms, but there's
[58:59] Speaker 2: a lot high tech here.
[59:00] Speaker 3: Well, and something as easy as if you said, twenty
[59:03] Speaker 3: years ago you had irrigation on a property, these big
[59:06] Speaker 3: irrigation pivots, and you know there's some publicly traded companies
[59:09] Speaker 3: that manufacture all these in the US, like Valley and Lindsay.
[59:12] Speaker 3: And twenty years ago, if a farmer had twenty pivots,
[59:15] Speaker 3: they'd have to have five or six different people in
[59:17] Speaker 3: the morning get in a truck and go out and
[59:20] Speaker 3: start them up, and then throughout the day drive by
[59:22] Speaker 3: and make sure they're still running. Now that farmer can
[59:25] Speaker 3: control everything from his or her iPhone they can start it,
[59:28] Speaker 3: stop it, monitor they have soil moisture probes out? Are
[59:32] Speaker 3: they moisture probes out in the soil so that they
[59:34] Speaker 3: know do we need it? In some cases they are
[59:37] Speaker 3: using AI or some learning mechanisms to say, well, based
[59:40] Speaker 3: on is it going to rain, we're not going to
[59:43] Speaker 3: turn itself on. So farmers are subscribing to some of
[59:46] Speaker 3: this kind of smart data to go out there and
[59:48] Speaker 3: make them a better operator.
[59:50] Speaker 4: And those are the farmers that.
[59:51] Speaker 3: When you look at who are the people that are
[59:54] Speaker 3: going to grow, they're the ones that are using the
[59:56] Speaker 3: latest technology that'll do that.
[59:57] Speaker 2: And our final question before our favorite, what do you
[1:00:00] Speaker 2: think people don't understand or aren't talking about when it
[1:00:05] Speaker 2: comes to farmland as an investment.
[1:00:09] Speaker 3: Yeah, I think most people don't understand just the sophistication
[1:00:12] Speaker 3: of the farmers they're dealing with. When people say what's
[1:00:15] Speaker 3: going on in agriculture, they paint with a very broad brush.
[1:00:18] Speaker 3: And you wouldn't say that if you said what's going
[1:00:21] Speaker 3: on in accounting, Well, there's some great accountants and probably
[1:00:23] Speaker 3: some poor ones.
[1:00:24] Speaker 4: Or what's going on in.
[1:00:25] Speaker 3: Any industry, you have to look at who are the
[1:00:28] Speaker 3: people leading the way and that's who we try to
[1:00:30] Speaker 3: partner with because we think they will help us generate
[1:00:33] Speaker 3: the best returns. Whenever that Bloomberg Indiana Farmland Go exists,
[1:00:38] Speaker 3: it's going to be pretty fully priced.
[1:00:39] Speaker 4: I think it'll be much more efficient.
[1:00:41] Speaker 3: The inefficiency is still out there, and I think that's
[1:00:45] Speaker 3: what we're able to I won't say take advantage of,
[1:00:48] Speaker 3: but that's what we've been able to lever over time
[1:00:50] Speaker 3: is focusing on that inefficiency. There will be a lot
[1:00:53] Speaker 3: more money that comes in investing in farmland. We're seeing
[1:00:56] Speaker 3: crowd sourcing of farms. We're seeing more public rates that
[1:00:59] Speaker 3: are going to be launched, and that we'll be out there.
[1:01:02] Speaker 3: But I think it's a long way. When you think
[1:01:04] Speaker 3: of there's no cheap beta, there'll be a lot of
[1:01:06] Speaker 3: expensive beta out there. There are still alpha generators, and
[1:01:10] Speaker 3: this is NASA classic. You just have to go pick
[1:01:11] Speaker 3: a manager. You can't just say acid allocation helps us
[1:01:14] Speaker 3: and gets us there. You have to pick a manager.
[1:01:16] Speaker 2: There's no vanguard for a passive indexing fall.
[1:01:20] Speaker 4: Now, yeah, there's no wisdom try for that. Yeah.
[1:01:22] Speaker 2: Now all right, so let's jump to our favorite questions
[1:01:25] Speaker 2: we ask all our guests, starting with tell Us about
[1:01:28] Speaker 2: your mentors who helped shape your career.
[1:01:31] Speaker 3: Yeah, so I'll start with my parents, because they encouraged
[1:01:36] Speaker 3: all of us, on the six of us and our
[1:01:38] Speaker 3: family do something else.
[1:01:39] Speaker 4: We know this is.
[1:01:40] Speaker 2: Not not uncommon with farmers, right.
[1:01:42] Speaker 3: Yeah, And they both grew up on dairy farms, and
[1:01:46] Speaker 3: we grew up on my dad's family farm. And my
[1:01:49] Speaker 3: parents were both very well educated. You know, I'll remember
[1:01:52] Speaker 3: some of my best memories as a kid. We're having
[1:01:54] Speaker 3: dinner watching Jeopardy with them, and it was we always shocked.
[1:01:58] Speaker 4: How do they know all these ans ran the table exactly.
[1:02:00] Speaker 3: We were not very successful, but you know, our parents
[1:02:03] Speaker 3: were really focused on education and just doing you know,
[1:02:07] Speaker 3: something better. You know, we'll always have the family farm.
[1:02:10] Speaker 3: My mom still lives there today and it's great to
[1:02:12] Speaker 3: go back there. But you know, they really encouraged all
[1:02:15] Speaker 3: of us go do something else and gave us the opportunity.
[1:02:17] Speaker 3: There was no pressure for any of us to come
[1:02:19] Speaker 3: back to the farm. They actually said, I remember my
[1:02:22] Speaker 3: dad telling me the year you were born in the
[1:02:24] Speaker 3: year you graduated high school, the price of milk was
[1:02:26] Speaker 3: the same. This is not a long term strategy. So
[1:02:31] Speaker 3: and so, so I'll start with them. But you know,
[1:02:34] Speaker 3: I had some great folks I've worked with throughout my career.
[1:02:38] Speaker 3: Someone at Morgan Stanley that I think really made a
[1:02:40] Speaker 3: difference for me was Arthur lev who had come from
[1:02:42] Speaker 3: front Point. He was the head of chief legal officer
[1:02:45] Speaker 3: there and he was probably the biggest proponent of me
[1:02:48] Speaker 3: going to Cyrus.
[1:02:49] Speaker 4: He said, you have to do this, why would you not?
[1:02:52] Speaker 3: And I've worked with some great people that you know,
[1:02:55] Speaker 3: having been at Lehman Brothers, there's a lot of people
[1:02:58] Speaker 3: that got vaporized that I really respect it. And you
[1:03:02] Speaker 3: just think, Okay, if you're going to take a chance
[1:03:03] Speaker 3: on something, you got to do it. And seeing kind
[1:03:07] Speaker 3: of what's happened over time throughout my career, a lot
[1:03:09] Speaker 3: has occurred. You know, it's all shaped you in a
[1:03:12] Speaker 3: different way. And our founder, Perry Beeth, I mean I
[1:03:15] Speaker 3: think about this today and five years I'll be fifty two,
[1:03:18] Speaker 3: and that's when he started serious when he was fifty two,
[1:03:21] Speaker 3: and it was completely different than being the fixed income
[1:03:24] Speaker 3: money manager that he was. And you know, building a
[1:03:27] Speaker 3: great team I think is the best thing he did.
[1:03:30] Speaker 4: And the people that we've been able.
[1:03:32] Speaker 3: To hire over time, you know, I want to be
[1:03:34] Speaker 3: their mentor because I know they'll be better than me,
[1:03:37] Speaker 3: and that, to me has been the most important thing.
[1:03:39] Speaker 2: Really fascinating. Let's look about books. What are some of
[1:03:42] Speaker 2: your favorites.
[1:03:42] Speaker 4: What are you reading currently?
[1:03:43] Speaker 3: Yeah, so a book and I mentioned Water is just
[1:03:46] Speaker 3: such an important thing. A book that I read often.
[1:03:48] Speaker 3: It's called Water, The Epic Struggle for Power and Civilization,
[1:03:52] Speaker 3: and it really talks through It's a history book, but
[1:03:54] Speaker 3: it talks through the success of civilizations around their ability
[1:03:57] Speaker 3: to access clean water and their ability to treat dirty
[1:04:01] Speaker 3: water and get rid of it. And it's just a
[1:04:03] Speaker 3: fascinating story of kind of the growth throughout the world
[1:04:09] Speaker 3: population growth. But something I'm reading now that I just finished,
[1:04:12] Speaker 3: and it's because I'm on the board of my high school.
[1:04:14] Speaker 3: They just did away with cell phones and it's The
[1:04:17] Speaker 3: Anxious Generation, and it's really Yeah, it's an eye opening
[1:04:22] Speaker 3: book about social media and when people have their phones
[1:04:26] Speaker 3: just how it impacts their life. And so our Jesuit
[1:04:29] Speaker 3: High school did away with cell phones and I think
[1:04:31] Speaker 3: it's the greatest thing they could do.
[1:04:32] Speaker 2: There's a lot of that going on these days. More
[1:04:34] Speaker 2: and more school districts are are forcing them the kids
[1:04:38] Speaker 2: to put schools and phones and lockers.
[1:04:40] Speaker 3: Yeah, they should do that. I mean, we have to
[1:04:42] Speaker 3: get them out of our house, the iPads and stuff.
[1:04:44] Speaker 3: That's a bigger battle to get through. But yeah, it's
[1:04:48] Speaker 3: something that's just eye opening.
[1:04:49] Speaker 2: Let's talk about streaming. What are you listening to or
[1:04:52] Speaker 2: watching on Netflix or Amazon Prime? Well?
[1:04:55] Speaker 3: I have a lot of windshield time, so I listened
[1:04:57] Speaker 3: to a lot of podcasts, so you know, Investige the
[1:05:00] Speaker 3: best obviously, you know Med Faber, Jeremy Schwartz, Pirvorite Holts.
[1:05:06] Speaker 3: I listen to a lot of business podcasts. I also
[1:05:08] Speaker 3: love sports, so I listen to a lot of Ringer
[1:05:10] Speaker 3: podcasts too around sports and entertainment. On the streaming side,
[1:05:15] Speaker 3: you know, I rewatch The Wire every year. It is
[1:05:18] Speaker 3: just my favorite show ever, and so I do that
[1:05:21] Speaker 3: every year. I'm now watching Severance, which is an interesting
[1:05:25] Speaker 3: I'm not all the way done with the three seasons yet,
[1:05:28] Speaker 3: so it takes.
[1:05:29] Speaker 2: A couple of severe turns that are like where did
[1:05:32] Speaker 2: that come from?
[1:05:33] Speaker 4: Yeah? I can imagine, but.
[1:05:34] Speaker 2: The whole concept is kind of fascinating.
[1:05:36] Speaker 4: Yeah, exactly.
[1:05:37] Speaker 2: Final two questions, what sort of advice would you give
[1:05:41] Speaker 2: to a recent college grad interest in the career in
[1:05:45] Speaker 2: either investing alternatives or farmland investing.
[1:05:50] Speaker 3: Yeah, I think back to you know, building the network
[1:05:54] Speaker 3: is probably the most important thing you can ever do,
[1:05:57] Speaker 3: because there's there's so many people that are good at
[1:06:00] Speaker 3: Whatever you think you're good at, there's someone that's better
[1:06:01] Speaker 3: at it, for sure, whether it's modeling, you know, thinking
[1:06:05] Speaker 3: about investing, whatever it may be, someone's always better. So
[1:06:09] Speaker 3: to me, building that network, and you can't be full
[1:06:13] Speaker 3: of it, like you have to be genuine when you
[1:06:15] Speaker 3: when you're talking to people. But I think that's been
[1:06:17] Speaker 3: the best thing I've ever done, and that's the thing
[1:06:19] Speaker 3: I can and that's why I take a lot of time.
[1:06:22] Speaker 3: I mean, we get a lot of people that reach
[1:06:24] Speaker 3: out to us with all types of questions. And all
[1:06:27] Speaker 3: of the portfolio managers on our team grew up on
[1:06:30] Speaker 3: family farms. They all went and worked in finance. And
[1:06:32] Speaker 3: there's probably a lot of Wall Street people, not per capita,
[1:06:35] Speaker 3: but generally a lot of Wall Street people that grew
[1:06:38] Speaker 3: up on farms and had this great foundation of hard
[1:06:42] Speaker 3: work and then they figured we'll just I'll never be
[1:06:44] Speaker 3: able to use that again for the rest of my life.
[1:06:47] Speaker 3: So I think being able to build up your network
[1:06:49] Speaker 3: because sometimes you can pull on a thread and you
[1:06:52] Speaker 3: won't know where it'll go. And so that's what you know,
[1:06:55] Speaker 3: that idea of talking to someone at an endowment to say,
[1:06:59] Speaker 3: you know, kind of do a reference check for these
[1:07:01] Speaker 3: people I'm talking to, and they just said, well, you
[1:07:03] Speaker 3: should talk to this other person instead, And you just
[1:07:05] Speaker 3: never know what paths are going to go down to leverage.
[1:07:09] Speaker 2: That really really interesting. Our final question, what do you
[1:07:12] Speaker 2: know about the world of farmland investing today that might
[1:07:16] Speaker 2: have been useful fifteen years ago or so when you
[1:07:19] Speaker 2: were first diving into the space.
[1:07:22] Speaker 3: Yeah, I think when I think about it now, there
[1:07:25] Speaker 3: are very few farms we missed on that I wouldn't
[1:07:27] Speaker 3: love to own today. And you know, being able to
[1:07:30] Speaker 3: look back in the rear of your mirror and say
[1:07:32] Speaker 3: that would have been a great purchase.
[1:07:35] Speaker 4: You know, that's always interesting.
[1:07:37] Speaker 2: Is the regrets more the things you did and shouldn't
[1:07:40] Speaker 2: have or but the thing or the things you missed
[1:07:43] Speaker 2: and wish you did.
[1:07:44] Speaker 3: No, it's the things we missed that we wish we
[1:07:46] Speaker 3: had done. But today we're in a position that we
[1:07:48] Speaker 3: use no leverage when buying properties. They're all cash purchases.
[1:07:52] Speaker 3: You know, you can never say your bulletproof, but we
[1:07:54] Speaker 3: have a great balance sheet. But over time, we were
[1:07:58] Speaker 3: we were still doing missionary work in terms of telling people,
[1:08:00] Speaker 3: this is a real asset class. So we were using
[1:08:03] Speaker 3: leverage to purchase properties just when we didn't have new
[1:08:05] Speaker 3: money coming in. So we've always been very conservative, and
[1:08:09] Speaker 3: in farmland, leverage is a different beast.
[1:08:11] Speaker 4: You know, you can't buy.
[1:08:12] Speaker 2: It not twenty x.
[1:08:13] Speaker 3: No, you can't buy a farm with five percent down.
[1:08:15] Speaker 3: You need fifty or sixty percent down to buy a
[1:08:17] Speaker 3: f So it's.
[1:08:18] Speaker 2: Hodest leverage and unless there's a disaster.
[1:08:21] Speaker 4: Yeah, and it's all fixed straight mortgage debt.
[1:08:24] Speaker 3: But we were just always very conservative, and I think
[1:08:27] Speaker 3: some of that conservatism now you'd say, well, maybe that
[1:08:29] Speaker 3: was overly conservative, but you know, we also didn't get burned.
[1:08:34] Speaker 3: And you don't move from thirty million to two billion
[1:08:36] Speaker 3: by being overly aggressive, or you don't do it all
[1:08:38] Speaker 3: at once, you have to do it over time, and
[1:08:41] Speaker 3: that's kind of how what we've focused on.
[1:08:43] Speaker 2: Brandon, this was absolutely fascinating. We have been speaking with
[1:08:47] Speaker 2: Brandon Zick. He is the chief investment officer of Sarah's
[1:08:51] Speaker 2: funds now owned by the time you're seeing this by
[1:08:55] Speaker 2: Wisdom Tree Asset Management. If you enjoy this conversation, well,
[1:09:00] Speaker 2: be sure and check out any of the five hundred
[1:09:02] Speaker 2: and sixty nine episodes we've done previously over the past
[1:09:06] Speaker 2: eleven years. You can find those at Bloomberg, iTunes, Spotify,
[1:09:10] Speaker 2: and here at YouTube. Be sure and check out my
[1:09:14] Speaker 2: new book How Not to Invest The ideas, numbers, and
[1:09:19] Speaker 2: behaviors that destroy wealth and how to avoid them How
[1:09:22] Speaker 2: Not to Invest at your favorite bookseller. I would be remissified,
[1:09:26] Speaker 2: and I thank the Crack staff that puts these conversations
[1:09:29] Speaker 2: together each week. Alexis Noriega is my video producer. Anna
[1:09:33] Speaker 2: Luke is my audio producer. Sean Russo is my researcher.
[1:09:37] Speaker 2: Sage Bauman is ahead of podcasts here at Bloomberg. I'm
[1:09:41] Speaker 2: Barry Ridholtz. You've been listening to Masters in Business on
[1:09:45] Speaker 2: Bloomberg Radio.

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