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Boeckh Investment Letter

Investment and economic commentary by J.Anthony Boeckh and Robert Boeckh

Investing in Farmland: Near-Term Value Considerations and a Long-Term Perspective

Contributing author Jordan Hokanson is the President of HCI Ventures Ltd., which is the largest private owner of farmland in Saskatchewan. The company has been investing in farmland since 2004 and operates two large-scale farming operations totaling 28,000 acres of grain production. HCI also offers investment management services to investors looking to invest in farmland in Western Canada.

There has been a lot of interest in farmland investing over the past few years. This interest has come on the back of a terrific bull market in agricultural commodities. When evaluating different avenues to participate in this bull market in agriculture, farmland stands out from the crowd for a number of reasons:

  • Farmland is a Real Return Asset that has historically protected the value of investment capital from inflation.
  • Farmland has outperformed the TSX over the past 50 years and done so with less volatility.
  • Farmland has historically had a low correlation with stock markets, making it a great asset for portfolio diversification.
  • The supply of farmland in politically secure jurisdictions with good access to international markets is limited.
  • Farmland has low risk of becoming obsolete.
  • Farmland does not have significant maintenance capex to erode investor returns.
  • Historically, farmland held for the long term has generated attractive returns.Average Vaue of Saskatchewan Farmland and Buildings (1960-2013)

However, when evaluating the enthusiasm in today’s market for farmland, I am reminded of the investing adage that it is not assets that are risky, but human behavior that makes them so. This letter is intended to go beyond “pop economics” and explore the fundamentals behind farmland returns and what it might mean for future expected returns...

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