If you’ve ever gotten drunk on the inexpensive, ubiquitous Yellowtail or Gallo wines, you might be able to thank – or blame – John Hancock insurance.
Insurance and finance customers probably don’t realize it, but Hancock, UBS and Prudential are strong players in the agriculture busi-ness. Hancock is one of the top-five producers of wine grapes in the country – a boast it also claims for pistachios, walnuts, cranberries and almonds, according to Jeff Conrad, head of the Hancock Agricultural Investment Group.
HAIG owns farmland on behalf of institutional investors such as municipal pension fund managers, he said – all told, the group has about $1 billion invested in nearly 155,000 acres in the U.S. Cotton fields in Louisiana, apple orchards in Washington, corn and soybeans in Illinois and more, along with 6,000 acres in Australia, mostly in vineyards.
And in the past few years that land has been very profitable, indeed.
The same factors that helped send food prices soaring have also brought a cash windfall for institutional investors, leading to massive returns for HAIG’s and its competitors’ clients. But with land values jumping more than 40 percent in three years, anxiety about overval-ued land and a possible crash are making some analysts leery.
As of the end of 2007, HAIG’s clients saw nearly 25 percent in total returns for the past three-year period. In the last year alone, re-turns were more than 13 percent. Spiking land values contributed heavily to those numbers, with a 12.2 percent jump in value over the past three years.
“Land has made such a run-up the last three years that it’s hard to imagine it could go any higher,” said Paul Prentice, head of Colo-rado-based Farm Sector Economics, Inc. Prentice estimates that, nationally, land values have risen about 40 percent in that time. The values could keep rising, he said, but the past few years’ increases aren’t likely to continue.
Overvalued Orchards?
Prentice worries that much of the land has been overvalued, and those numbers could sink when agricultural investments do not bring in the promised returns in the near future. Worse, there could get a repeat of the 1980s, when land values were soaring and investors bought up land eagerly – only to have it crash shortly thereafter.
Conrad attributes the run-up on U.S. land values to a number of factors, at least two of which have been blamed for higher food costs: a growing global middle class has pushed up demand for a much wider variety of crops and livestock, and ethanol demand has created a boom in row-crop values.
In terms of U.S. land values, it’s also a matter of more land development – office complexes, housing and the like – as well as demand from private owners or groups who want land for their own purposes, such as hunting.
The institutional ag investment world is relatively small: only UBS, Hancock, Prudential and an Illinois-based group called Cozad/Westchester are in the market.
“It’s a pretty small universe of players,” said Randall Pope, president of Westchester Group. His group, unlike the others, has invested much of its $700 million overseas in Brazil and Australia.
New, smaller entrants such as hedge fund groups are starting to buy up more land, he said, but in terms of institutional investment, the pool has kept to its little handful of participants.
Brian Webb, CEO of UBS AgriVest, said UBS owns about 140,000 acres in the U.S., spread out among row crops and permanent crops such as fruit trees. Although Webb is based out of Texas, AgriVest has an office in Hartford.
Webb is more upbeat about land values. The past four years have brought “excessive returns,” but they’ve been backed up by good income.
The high land returns have grabbed a lot of investors’ interest, but Webb said that hasn’t led to a land grab.
“We’d love to buy more land, [but] because the farm sector is so well capitalized, not a lot of land is changing hands right now.”
