Commodity Online
CALGARY (CANADA): When the whole world says commodities are beaten, Agcapita Farmland Investment Partnership is upbeat on its prospects. With the investment wizard Jim Rogers recently joining the advisory board of the company, the Fund believes it will get a global profile and a real stamp of credibility for its investment premise—Western Canadian Farmland.

“Our firm is built around the core premise that the world is in the early stages of a bull market in commodities driven by inflation and a step-change increase in demand and accordingly, that investments with direct or indirect exposure to commodities in a politically stable environment such as western Canada will provide above average returns,” according to Stephen Johnston of Agcapita.

Agcapita’s investment team has over 40 years private equity and fund management experience and over $1 billion in total career transactions. The team currently manages a trio of private equity funds with almost CAD$ 100 million of assets under management and previously managed a group of emerging market funds with almost C$500 million in assets for one of the largest banks in Europe.

Agcapita’s advisory panel has 40 years experience in global commodity investing, 25 years experience in large scale farm operations; 2 PhDs in agriculture related fields – biotechnology and economics; 37 patents in plant genetics, 15 pending; and 20 years in senior government positions in Saskatchewan including cabinet posts

Agcapita Farmland Investment Partnership is the third in a family of alternative investment funds which has grown to almost $100 million in assets under management.

Agcapita’s first farmland fund is currently finalizing its 2008 acquisition program in anticipation of the launch of a $50 million follow-on fund in late Q4 2008.

What makes Candian Farmland worthwhile
Agcapita said Canadian farmland is high quality: Canada is the third largest wheat exporter in the world and in aggregate one of the largest agricultural producers in the world. The three western Canadian provinces alone have approximately 135 million acres of farmland and produce approximately 20 million tons of wheat a year.Canadian farmland is low cost: Agcapita believes Saskatchewan farmland in particular is an undervalued asset. With an average price of $390 per acre, Saskatchewan farmland is some of the least expensive in the world. The prices in Alberta are almost 3 times higher than Saskatchewan at an average of $1,000. During the last commodity bull market in the 1970s, farmland in western Canada went from $100/acre in 1970 to $550 in 1981 – a 550% increase.

Canada has world class farming infrastructure: Unlike investing in farmland in emerging markets such as Argentina, Brazil or Russia, Canadian farmland is supported by first world storage, processing, and shipping infrastructure. This infrastructure is extremely costly to reproduce.

Canada has low political risk: Unlike emerging markets, Canada lacks significant political risk. Canadian farmland owners benefit from a transparent and enforceable title system with no material risk of de jure or, worse yet, de facto expropriation. See recent agriculture export tariffs in Argentina, Indonesia, and Kazakstan.

Strong Global Macro Drivers: Canadian farmland prices are being driven by strong and persistent global market forces.

A decreasing amount of arable land worldwide, proportionate to the increasing population;

An increasing demand for meat calories (as development occurs and standards of living increase) which need more farmland for production than grain calories; and
A commitment by many countries (including Canada) to increase the use of biofuels, which will need farmland for production – current mandates will consume over 400 million acres – 10% of the worlds arable land.

Inflation: Inflation is accelerating across the globe and will also act to drive agriculture commodity and farmland prices much higher. Farmland is a good inflation hedge and outperforms during inflationary periods. So much so that farmland has been described as “gold with a cash yield”. The rate of annual US money supply growth (M3 reconstructed) has actually doubled in the last 2 years – to over 16% - and virtually every major economy in the world is pursuing aggressive monetary policies as they attempt to inflate out of the current credit crisis and/or maintain growth. Money supply growth (M2, M3 and M3 reconstructed pa):

Switzerland - 1%
EU - 12%
Canada - 12%
UK - 13%
US - 16%
China - 19%
India - 20%
Russia - 48%

The equity and bond markets have benefited from a long period of low inflation, but ongoing and massive central bank liquidity injections point to a far less benign environment of elevated inflation ahead. Research by our firm, Agcapita Farmland Investment Partnership (Calgary, Canada based agriculture private equity firm – www.farmlandinvestmentpartnership.com) shows investors must be prepared to rotate into asset classes with different characteristics. During the last commodity bull market & high inflation period in the 1970’s, equities materially underperformed farmland.
- Western Canadian farmland went from around $100/acre to $550/acre (550% total return and 176% in inflation adjusted terms);
- Cash held in a money market account barely kept ahead of inflation (6% inflation adjusted return); and the
- S&P 500 index returned less than 2% per year (a loss of almost 50% in inflation in adjusted terms)

”We believe the world is still in the early stages of this current commodity bull market,” Stephen Johnston said.

When agriculture commodities prices are compared against their previous inflation adjusted highs they are significantly discounted implying scope for further increases:
- Corn is US$ 5/bushel currently compared to US$16/bushel in 1974,
- Wheat is US$ 7/bushel currently compared to US$27/bushel in 1974
- Canadian farmland is C$ 660/acre currently compared to C$1,100/acre in 1981

Diversification: It is very difficult to obtain diversification in the current market with high positive correlations between virtually all asset classes. This is a very unusual state of affairs. There are very few uncorrelated assets classes accessible to the average investor. Farmland has a small negative correlation to stocks and a high correlation to inflation. The challenge is how to cost effectively deploy capital in these areas – private equity partnerships like Agcapita allow diversification at reasonable investment levels and professional management of all the complex operational and legal elements of making a farmland investment.

Returns: Agcapita captures both operating and capital appreciation returns by acquiring a portfolio of farmland which it leases to qualified operators on a cash rent and/or crop sharing basis. Carbon credits are aggregated and marketed to existing exchanges, Stephen Johnston said.