Midwest Agriculture Conference: Who Owns Midwest Farmland? And Why?

DAVID OPPEDAHL: Well, welcome back, everyone. It's time for our concluding panel today. We're going to have some experts that provide their own perspectives on farmland ownership from various vantage points.

And so it'll be very interesting to hear someone who has a global perspective here. We have Martin Davies from Nuveen. And then we have Doug Hensley from Hertz Farm Management in the Midwest.

And then we have Bob Stewart, who is a landowner here in Illinois and a farmer. And then we have Brandon Zick, who handles investments for Ceres Capital. So why don't we start with Martin giving us his perspective. And we'll go from there.

MARTIN DAVIES: Yeah, thanks, David. And apologies, I had a few slides. They sent an email last night saying some of the others had got slides. So--

DAVID OPPEDAHL: Martin, do you have a microphone? Because we probably will need you to be up here, if not.

MARTIN DAVIES: I can be up here.

DAVID OPPEDAHL: Yeah. We'll just all be up here. Sorry.

MARTIN DAVIES: Always behave yourself and do what the chairman says.

[LAUGHS]

Yeah. So I read the tone of the room. So [INAUDIBLE] referred earlier to nasty foreign owners of land, I think was the term that she used. So I think I probably fall into that category.

But just a few thoughts here just a few opening comments. So we do invest in the Midwest. But we do also invest in vineyards in California. And I would strongly recommend anybody thinking about investing in agriculture, there are some advantages to investing in California, which you don't necessarily get in the Midwest.

OK. So Nuveen, those of you from Chicago probably know the Nuveen business, which is 125 years old this year. So the business, which really was a municipal bond business, that was acquired by TIAA I think about six years ago. But just to put in context who we are, so Nuveen is the investment management businesses Teachers Insurance Annuity Association of America.

So you see here on the slide, the breakup of investments that the general account, which is about $292 billion, what it's invested in. So the general account is providing a guaranteed payout for five million people working in the education sector in the US. So a significant amount of the portfolio, because of risk-based capital rules and the like, is invested in fixed income. About 17% is invested in real assets.

Of that real asset exposure, 2% is invested in what we refer to today as natural capital. But essentially, that's farmland, timberland, mitigation, banks, and the like. So the Nuveen investment management business is actually investment of the TIAA general account. So that's how everything fits together.

So we do have a global platform. So the business that I run is part of the wider $1.1 trillion Nuveen platform. So the Nuveen platform is managing the capital for the TIAA general account and many other institutional investors with global footprint. And also, we do have quite a presence in the wealth channel, particularly in the US.

So why do we have this global footprint? So some of you here would probably be more well-acquainted with the term Westchester, which was the original farmland investment management business which was officed out of Champaign, Urbana. We still have an office there. So the business, really, in 1986, started out in the Midwest. And it was acquired by TIAA in 2010. And we have expanded the business significantly since then.

So we started investing globally in 2007. About 2 and 1/2 years ago, we brought the timberland investment management business into the farmland investment management business. And we rebranded as Nuveen Natural Capital.

So of the $12 and a half billion, give or take, that the business that I run manages, about 45% of that is TIAA general account capital. So maybe we can be considered to be a domestic investor in the US.

But we manage capital for about another 55, mainly pension fund investors who have global footprint. And increasingly in the last few years, we've started adding in retail capital by setting up feeder funds for some of our main funds. So it's a fairly significant platform.

To go back to my favorite part of the business, the wine grapes, we produce about 120,000 tons of wine grapes in California on an annual basis that's enough for 90 million bottles of wine. So I do encourage you all to drink plenty of wine because it does ultimately improve our returns.

We produce a lot of almonds. I wish we didn't really produce almonds today. But we're in a pricing cycle.

So diversification is the name of the game to deliver consistent returns for our investors over time. So when we think about constructing the portfolios that we put together, we think about the geographic diversification, so country, but also within country. So we're looking at developed markets and developing markets as well. So we do have quite a footprint in South America.

We think about different operating strategies. So the land which is producing row crops, we tend to lease that out to local farmers. So in the Midwest, in Illinois, Ohio, and Indiana, we have about 37,000 acres, which at the end of last year was marked at a $570 million worth of value that's about 6% of our overall portfolio.

Diversification in operating, we operate permanent crops, lease out row crops. Water profile, we're growing a lot of crops in places globally where we're totally reliant on irrigation water. One of the beauties of the Midwest is you get 40 inches of rain that falls out of the sky free of charge. The timing of that maybe is not always perfect. But if you go to California, or you go to certain parts of Australia where you're totally reliant on irrigation, it's a very different story.

So crop type diversification, so the platform today is managing about 2.2 million acres, and that's 46 different crop types. But I made the comment there flippantly about almonds. We've been in a pretty tough market for almonds for the last two or three years. Wine grapes, on the other hand, have had a pretty good run in recent times and, as well as that, the row crop situation generally has been pretty good.

So how do we go about constructing these portfolios? We're looking at four different investment opportunities which don't exhibit any characteristics of correlation between them. And just to pick out an example there, Illinois farmland, there's no logical reason why there would be any correlation to the returns of pistachios in the Central Valley of California. So if you put these different types of investments together, you have the ability to deliver pretty resilient portfolios. And we do a lot of work looking at exactly what that portfolio looks like.

So our head of research, Gwen Busby, who some of you might well have heard speaking, runs a mean variance model where we look at what the optimum portfolio is for any type of vehicle. We might be looking for different characteristics from the vehicle. But the Midwest does feature in all of those strategies.

Now if I consider the wider US row crop portfolio that we have, we have about 270,000 acres in the US, 37,000 of that is in the Midwest. So globally, within the US, it's our most stable market. It's a very deep tenant pool.

It's a very good infrastructure, exceptionally good soil type. You've got good climatic conditions. And quite conveniently, it was all settled in mile by mile squares, which actually make the job of acquiring land and managing it quite a lot more straightforward than if you start looking at farms in other parts of the world.

Just one final thought, I noted there had been several questions about the carbon ecosystem value. So the traditional asset class characteristics are why TIAA started investing in farmland back in 2007. And those characteristics, the inflation hedging characteristics not being correlated with the cycle, providing strong income and capital growth still absolutely hold true. And certainly, if you look at the last two years, that's been borne out.

But increasingly, we are seeing investors starting to look at farmland and particularly timberland from a carbon intensity perspective. Many pension funds have net zero targets for their portfolios. And although agriculture is responsible for about 25% of global greenhouse gas emissions, when you compare it to the investments that you can make in other real assets, it's pretty low carbon intensity.

The scatter graph here is just a risk return. And the bubbles represent the carbon intensity per million dollars of capital invested. Timber is black because it's actually removing carbon dioxide from the atmosphere in a consequential way.

So those are just a few introductory comments to just to put in context who we are and what we do. So I think I'm handing over to Doug.

DOUG HENSLEY: You bet. Glad to be with everybody today. I'm here representing Hertz Farm Management and Real Estate. We're a central Iowa-based, 80-year-old farmland management brokerage auction and appraisal firm. Which is to say we help farm landowners make informed and confident decisions as it relates to their farmland holdings.

Most of our clients are individuals or families. We do do some institutional management and endowment type of management. But by and large, the clients that we are representing are individuals and families who have inherited assets over the years. The scale of our business, we manage about 650,000 acres across the majority of the Midwestern states from, say, Eastern Colorado through the state of Indiana, kind of from the Canadian border coming down south into Missouri, Southern Illinois, the belt buckle of the corn belt is really the way I describe our area.

I'm a son of Illinois agriculture. I grew up on a cash grain and livestock farm in West Central Illinois. My family still farms there. I'm a farmland owner myself in Illinois and Iowa. So yeah, that's a little about us.

BOB STEWART: Bob Stewart. Glad to be with you guys. I see a lot of familiar faces from across my career here. I'm happy to be here.

I think the token farmer on the panel, to try to bring it from the 10,000 foot level, which we heard a lot about this morning, maybe down to the 1 foot level. So that's give you perspective on why my family farms and why we purchase farm land.

We just got done with harvest or close to done with harvest, close to the finish line here last week. So just getting out of the combine cab. So it's a little bit of a culture shock to be in a room like this after I've been in fields for the past three months or so. But happy to be with you.

Oops. Going the wrong way.

A little background on us, family farm, currently three generations involved with the family farm. My folks are still involved. My brother and I are the main partners in the operation. And now the next generation is coming back. My daughter is back, actually, running machines for us and doing some of the management.

We do corn, soybeans, and seed corn in Illinois, not real exciting. That's what most of us do in Illinois. But we try to do it the best we can.

A little background about where we farm, only about 50 miles from here is home for us. So Yorkville, which is on the edge of the suburban fringe, which is why we've gotten into some of the 1031 exchanges which I think we'll get into some of the discussion a little bit later on. But that's home for us.

That's where our family settled back in the 1850s. Really good soil, but good or bad, we've got houses coming over the horizon.

So one of the reasons we are not only in Yorkville, which is home for us, we're also in Central Illinois, near Farmer City, if you're familiar with that down between Bloomington and Champaign, about half of our land base is down there. And the reason was that back in 2005, the houses were coming. We decided to start selling. And we 1031 down there to start farming.

We thought that we were going to get totally pushed out of there. Because the houses were coming so fast that our end was near. As it turns out, we kind of got stuck, not really stuck, but had the opportunity to farm in two places.

So now half our acres are around home and half are south. And it's turned out to be a blessing because it's a geographic dispersion of our risk. So we have a different climate down there. We're actually able to start farming down there earlier in the spring and start harvest later in north.

So we actually run the same machinery between the two spots. It's about 100 miles between them. We don't drive the stuff. We usually haul it on low boy. But we'll start south and then migrate north, so it's worked out well for us. And it's given us two different investment criterias to look at.

In Central Illinois, you're strictly farmland. That's where your return is. We're raising seed corn, but it's strictly a farmland return.

North, we still dabble with the development potential. So we've got some land that we buy closer into town we think is going to develop. But then we also have the pure farmland kind of closer to home that we manage.

It's been interesting to watch that market, as back in 2005, there was no way we were going to invest around home because we were approaching $50, $70,000 an acre. We had the collapse. We were able actually to buy some land back that was sold for development prices back for farmland prices just because how the things balanced.

As it turns out now, we're actually 1031 back north, which we never thought we'd move land back north. But we're doing some of that. I think it's because of the counties that we're in and the quality of land down there. There actually is a premium south now compared to north just because there's a competition for it.

DAVID OPPEDAHL: Before we go on, could you just explain what a 1031 is? Because not everybody's familiar with that terminology.

BOB STEWART: Yep. So a tax free exchange, so what you're doing is taking the basis in your property and rolling into the next one. So generations from now, somebody's going to unroll this. Because we've got some land that has been transferred several times. They may have a basis of $100 an acre in it.

So if they ever decide I want to cash out and I want Google stock, they're going to pay the tax. Because you're not doing a like kind exchange. I can exchange into real estate property. I could do another rental property, like a commercial real estate building, maybe. But for land, we try to go exchange directly.

Just to pull up farm fields, I know we've been talking all morning about farmland and where it is and how you invest in it, this is around our little local neighborhood. And people often ask me when they say, well, you're a farmer and let's say you farm 9,000 acres, well, you must all be close to your house. Why would you drive all over the state to farm farmland?

And it's just the nature of the beast. You may wait 100 years for that piece to come up next to you that you're going to buy. And we talked earlier about, well, why do some sales go for $30,000 an acre and some go for $10,000, and they may be two miles apart, and it's that reason.

Because a farmer could be sitting there waiting for that long. And especially if it's two brothers, it's going to get ugly to see who can get that piece off. And when you farm with brothers, you understand that. And a lot of you guys come from families and know how that works.

So this is our home operation, this kind of tight stuff that we call close to home. And it's taken us 50 years to pull it that close to home. So there's about 4,000 acres in those combined blocks. But when you talk about why would farmers do that, well, it's a pride thing.

But it's also efficiency. And the reason we want big fields is because of the big machines these days and the time to move between fields and be close to your home grain set up operation so you can take grain back efficiently, be back to your farm shop, be back to your bedroom so you can sleep at night. All those factor into why I would pay more to be close to home. So just a little aside as to why we see some of the anomalies we see in the farmland market.

Oops. So what do we look for in farmland? Like I said, location is probably number one. And we farm in four different counties.

If Doug comes to me with a listing in Western Illinois, I'd say that's interesting. But I'm probably not interested because we're not driving to farm it. Because our main deal is we want to farm it if we're going to buy it. If we're going to find it for an investor, we want it close to our grain systems, something that's efficient for us to be able to manage.

And we've tried going to multiple locations beyond this. At one time, we were farming in four locations in, like, a 100-mile square. You start really missing opportunities for the right weather to get your crops in and out.

So now we focus in two spots, almost by mistake expanding north to south has turned out to be a great thing for us. Because the climate changes that way. If we try to go East-West, yeah, it'd be great to run down 80 with your low boys and get there. But you're probably going to be trying to plant in the same day in Ames that you are in Morris, Illinois.

So that's harder to do. We've made the mistake of you're in the wrong spot, the wrong time. That happens all the time. It rains in Champaign or where we're at and you can't get in there. But location really matters.

Number two, quality soils, I think everybody on the panel would agree. It's hard to beat the best quality soils to get the best yields. Especially if we're trying to farm it ourselves, that really factors into the returns we can get.

Drainage, and you can say, well, do you only pick tiled fields? No, when I talk of drainage, for us it means that there's an outlet for water. Because we can improve a farm.

I may be able to buy a farm a little bit less expensive because it has drainage problems. But if it has an outlet and we can put the tile in, we do our own tiling, we can take care of those. So what looking for is an outlet, not necessarily that's already improved.

As I said, the drainage, or the size of the tracts, that's really critical for the size of machines and the cost and time and commitment it takes to get these crops out. We really got to be farming at least 200 acre fields. Because jumping all over for 40s and 15s just doesn't work. You got to farm the bigger tracts.

And then, for us, the development potential, we try to be a little bit diversified when we're selecting so that we're not all buying flat black stuff, though it's fun to farm. You may buy the rolly one that's close to town. Because you know that sooner or later the big Amazon box is coming, or whatever is coming next. So you got a piece that you can roll a little bit later.

Oops. I keep going the wrong way, just a slide to talk about the importance of location. And I mentioned running big machines. These are two 16-year-old combines that we run. So they're pushing out over 12,000 bushel an hour.

So that's 12 semis an hour that they got to haul back to the home farm location. So being close to that site so we can run 3 semis instead of 8 is incredibly important for us. Because it's almost exponential. The farther you get away from the homesite, the more semis you're going to run, and that's one of those things in this economy that's the hardest thing to find is truck drivers and trucks. So if we can get by with big machines in the field and not long hauls, it really impacts how fast we can get the crops out.

So the inefficiencies of moving the machinery, same way. If we can stay in that same field for a couple of days and run those machines, and if you've ever been around big farm machinery, you may have to disassemble it. We have to take those heads off to move down to the next field down the road. So it's just way inefficient, especially up near the suburbs where we farm, to be able to jump around fields and then stay in big tracts.

So that's my perspective, like I said, a little bit down to the 1 foot level versus the 10,000. But hope to add some to the panel.

BRANDON ZICK: Hi. I'm Brandon Zick, the chief investment officer of Ceres Partners. Thanks for having me here today.

We are a founder-led private organization based in South Bend, Indiana, so right here in the 7th District. We own mostly rural crop farmland. And the vast majority of that is here within the 7th District. You'll notice those are two photos of farms in the 7th District here, onions in Michigan, and wheat in Indiana.

We manage about a billion and a half dollars, like I said, based in South Bend, mostly row crops. While each of us on the team grew up on family farms, mine was a great dairy in northeastern Pennsylvania, none of us are farmers today. And what we try to identify are farmers like the Stewarts that are great row crop farmers, local to an area, so that when we buy farms, we can then lease that to them on a long term lease.

Like any other real estate buyer, we'd like to try to find value. Income is really the mechanism we use for determining value on a property. We like to do value-add improvements, so the drainage tile. Irrigation is a big one, because we think that opens up a lot of crop potential on farms, specifically in areas like Illinois, Indiana, Michigan, Wisconsin where you can move far beyond just corn and soybeans and wheat. And then working with great farmers, and today we work with over 150 family farms that, if you look at what they own, what they farm for us, and what they farm from others is almost a million acres here in mostly the Eastern corn belt.

And we're an open-ended fund. Our investors are pension plans, endowments, foundations, and a lot of individuals that just like having US farmland in their portfolio.

This is our footprint. You can see it's overwhelmingly around the Great Lakes region. Martin mentioned water. It's a big part of our thesis. We love it.

So we like it when it rains. That's still the cheapest form of irrigation that exists in growing a crop. But we also like aquifers that are recharging, or areas with great surface water. So while I think our footprint will expand over time, our largest holdings today are Indiana and Michigan. And along with Illinois, Ohio, and Wisconsin, I think that's going to be the foundation for the next $200, $300, $400 million that we invest, will be in those regions and farmed by local farmers in those areas.

And just to give you a quick sense, when you think of the Eastern corn belt, usually you are thinking about corn and soybeans. But with irrigation, it really opens up a lot of specialty crop potential. Austin talked about it this morning, the amount of pumpkins that are grown in Illinois.

And if you look up and down this list, when you think about seed corn, popcorn, tomatoes for processing, potatoes for chips, these are crops that are overwhelmingly grown here in the 7th District. And there's a lot of opportunity for great farmers that grow those crops to expand as you add things like irrigation. And if they're close by processing plants, it really opens up a lot of opportunities. So those are some of the things that we look at when we're buying farms, identifying a great farmer and then a great property and then looking to see what improvements could be made to overall diversify your portfolio amongst crops.

DAVID OPPEDAHL: Well, thanks for all those introductions and perspectives. I guess maybe we should drill down just a little bit further into specific deals. How do you analyze specific deals and what are the factors that really guide your decision making? So I don't know, Brandon, you want to start on that one and we'll work this way back.

BRANDON ZICK: Yeah, I think that's a great question. When we're looking at a farm deal, usually the first thing we're thinking about is who's our tenant. So we don't direct operate any of our farms. We're working with a farm operator that owns a lot of land themselves, rents a lot of land from other people that we heard about today, a lot of those elderly landowners. And then they farm acres for us.

So we're working with that farm tenant that, in most cases, they've been driving by that farm for potentially 20 or 30 years. Or in some cases, they're currently farming it. Their landlord now wants to sell.

So they're part of our diligence process. And working with them, we're identifying what CapEx needs to be invested, what rent they're willing to pay on the farm. And we are kind of pre-purchase negotiating a longer term lease. And then we go about trying to buy the farm for a return target that works for us. So I would say first and foremost, even above location, soil quality, it starts within our diligence process, who's our farm tenant.

DAVID OPPEDAHL: And then, just quickly, you mentioned the long term leases. What form do those take? Are you doing some sort of flex-type lease with them?

BRANDON ZICK: So long term in agriculture, it's kind of a misnomer. There's a lot of annual leases out there. So even if an operator has been farming a property for 30 years, it could very well be 30 one year leases.

So we prefer leases that are three to five years. They have usually some type of flex component, so there's a base rent. And then if there's a big increase in commodity prices during the lease term, it's almost like an embedded call option. We share in some of the upside. And if prices go down, it goes back down to that base rent.

We don't generally want to be in net crop shares with farmers. I think the incentives actually aren't aligned when you do that. I want farmers to do the best to produce the best crop they can. And if they know what they're paying, then they can kind of go down that path. But I think our structure, the overwhelming majority is to that multi-year cash rent plus some type of flex.

DAVID OPPEDAHL: Thanks. Bob?

BOB STEWART: I'd just add the location thing is the big one. The other thing we'll look at is--

DAVID OPPEDAHL: You already have a good farmer, right?

BOB STEWART: Yeah, right.

[LAUGHTER]

Hope so. But we'll look at the previous tenant. If we're trying to pick up something next door, see how it was farmed, if it can be improved. If the guy has a really bad reputation, we're going to soil test that thing before we take it, just make sure the fertility is built up. We will look at its history. But yeah, location is the number one for us.

DOUG HENSLEY: And for us, it's very dependent upon who we're representing. Because we're a little unique up here in that we represent lots of different interests across the market. If it's an existing farm management client that may want to add on to existing ownership that they already have in an area, drainage is very important. Whether it's contiguous to what they already own, whether-- again, we look at CapEx as well and what we can improve when it comes to an acquisition.

On the other side of it, last year we sold 550 farms. And so we're looking at things differently for seller clients than what we are for buyer clients. And it always comes down to the objectives of the owner. For some people, it's a purely financial decision.

For other people, it's very emotional. I think some of the information that we looked at this morning, the reason that Iowa farmland is owned by almost 40% of Iowa farmland owners is because of an emotional connection and sentimental and heritage reasons. So for some people, it's an emotional issue.

Other clients that we have work with us because we help them maintain relational harmony. And what I mean by that is when there are family members that inherit a farm, sometimes their uncle may be the one who's operating the farm. And it can be really complicated for families to work together. And so sometimes we're the objective third party in a lot of these situations that allows people to have Thanksgiving dinner

[LAUGHTER]

And so that's a role that we play in a lot of cases. And, again, when we're talking to clients about specific deals, we really try to drill down and understand what their goals and objectives are. And then we'll put on our hat and say, hey, how would we approach this knowing what the goals and objectives of that particular client is.

MARTIN DAVIES: You make me go last, David. There's nothing more to be said now--

[LAUGHTER]

--well, maybe a few different perspectives, perhaps. So I think one of the things which hasn't been mentioned is a lot of our clients are very focused on environment and sustainability factors. So increasingly, that becomes a pretty important aspect of looking at a property and considering its suitability for-- Doug mentions different types of client. So we have different investment vehicles, which have different return targets so that the asset needs to fit within that.

But looking at things today like a natural capital baseline. We do an environmental Phase I audit on all the acquisitions that we make. So we're looking at issues from a pollution point of view, so trying to manage some of the risks that exist there.

The other thing which we haven't really mentioned is the information that's available today in the way of historic performance of a particular tract of land. So if you want some certainty on how something's going to perform over time, the history, assuming it's been managed in a pretty reasonable way historically is a good benchmark for that. The last piece, which not so much maybe in the Midwest, but this is incredibly important in other locations, is just what the long term climate trajectory is.

Because if you're making a long term investment, whether you're a private investor or whether you're an open-ended fund with pension fund investors, if what you can grow today, you're not going to be able to grow, or the yields are going to be compromised within 10 or 15 years' time, it's not a particularly great story. So that's become an integral part of our underwriting, more relevant in some areas where there's more sensitivity around climate. But that certainly is a pretty important part of the equation today.

DAVID OPPEDAHL: So then, Martin, what specific sustainable practices, like carbon sequestration techniques, do you expect will measurably impact farmland values? Are there specific ones you're looking at?

MARTIN DAVIES: Yeah. So Nuveen Natural Capital, I know it sounds a bit trendy and that. But I think it is important to think about natural capital, the assets of the Earth. A farm is, by default, assets of the Earth, so soil, water, environment, biodiversity. So I think what we're trying to do from an environmental perspective is not just think about the provisioning services, though, so the provision of food, fiber, water.

We're trying to think about some of the regulating provisions. So carbon sequestration you mentioned, the actual action of keeping water clean, flood control prevention, and then some of the supporting factors, so soil creation, recycling of nutrients, and then the aspect of land. The last ecosystem service would be the value from a human utility perspective, so ecotourism, and so on.

So we are trying to think holistically about those value components. Hence the reason we're looking at a natural capital balance sheet, what you've actually got in the asset over and above just the traditional crop land perspective. So what we're trying to do as a business is to rather than just provide anecdotal evidence on how we're performing from an environmental perspective is to actually try and get quantifiable sustainability metrics and bring those into a natural capital balance sheet where we can report on the performance of the asset on all those aspects that a natural capital asset can provide.

DAVID OPPEDAHL: How about the rest of you? Are there thoughts about sustainability that come into play for the owners you represent, or in your own?

DOUG HENSLEY: Yeah. Very much so. From our perspective, we're the hands and feet of the owners is the way that I describe what we do. And conservation topics, sustainability topics are really front and center for a lot of the owners that we represent. And so that can be something as simple as maintaining grass waterways and farms that have a little role to them, or going at a different level, looking at water quality and putting in bio reactors and making sure that downstream is going to have nitrates filtered out of it because of the way that we're handling water on the farm, especially when we get to these three and four inch rains.

So fertility also plays a big role at the farm level, making sure that you have the right amount of nutrients in the places that they need to be and not too much, because from a financial perspective, over use of fertilizer is unwise. And also, from an environmental perspective, it's not something that is healthy for the environment. So we're really hands and feet, is the way I describe what we do from a conservation and sustainability approach.

BOB STEWART: And from our standpoint, trying to be sustainable means that we're going to keep farming for another 100 years. So we really don't try to follow any government regulations on it other than we follow them. But to try to go above and beyond that. Because I know that my family's going to be out there.

And people ask me, well, are the chemicals you use safe, or the new technologies, are those safe. If I'm going to put my daughter out in that sprayer spraying, yes. I'm going to make sure it's safe. We're not going to do anything that's not above board and I'm not thinking my family's safe.

Because we're doing this all around our homesite. And my family's out there. So we try to think in that level of being sustainable.

BRANDON ZICK: Yeah. And for us, when we really try to approach this through practice, even more so than measurement, it starts with finding great farmers. Because these farms, these are sustainable long term assets. When you think about it, they should be farmed for a long time.

We really focus on preventing soil erosion. We don't like the idea of draining aquifers for the sake of irrigation. So when I drive up I-5 in California and I see today versus 10 years ago, 100,000 more acres of pistachios and almonds, I don't think that's long term sustainable at all. I think it's opportunistic.

But from our standpoint, we really believe water is one of the most scarce resources out there. There's a reason why we have an overwhelming footprint in the 7th District. We have great water resources.

And I think sustainable means profitable over the long term. Farmers don't need long term government subsidies. A lot of those have disappeared. They have to be profitable.

So that's why we like to use these multi-year leases. We like to work with farmers that have been farming for a long time. They're multigenerational.

They have people coming behind them in the family. They're going to take over that operation. We're not the farmer ourselves. So identifying the right partners to deal with over the long term is really, again, our first step in going after any sustainability targets.

DAVID OPPEDAHL: Well, that's great. We have a higher interest rate environment now. How is that affecting your thinking about farmland? Anybody want to jump in there?

BOB STEWART: Sure. Got my lender in the audience. So I'll put him on the spot.

[LAUGHTER]

BRANDON ZICK: Careful now.

BOB STEWART: It entertains us dramatically, as I think the lunchtime speaker talked about low interest rates from a couple of years ago spurred investment. It worked for us. We were able to buy some farmland on debt, 2% interest, lock it down for 25 years or thereabouts.

So that was a very good move. At the time, you're, like, well, more debt. But in hindsight, that was one of our best moves ever.

Now you can say, well, are you doing that now? No. So now when we buy land, it's trading basically only. So it's repositioning those checkers to get the farms in the right spot, maybe going from south to north, maybe doing some development stuff.

But it's totally changed what we do. If the 80 came up next door, yeah, I'd probably talk to Ty, and we could see if we could get it bought.

But we're not going large scale at 7, 8% interest because it just does not cash flow anymore. The beauty of back when it was 2 or 3% interest, actually, at that time, if you had capital behind you, you could buy land and finance it cheaper than the cash rents were. So you were encouraged to expand if you could by buying versus now it's kind of back to cash rents are a bargain compared to 8% interest.

BRANDON ZICK: Yeah, I mean, we certainly think interest rates affect the market. While there's not a lot of debt on farm real estate generally, we heard about that this morning, you do have to factor it into your underwriting. When we talk to a farmer about their profitability on that farm, the rates along operating lines are certainly very important and increased than what they would be previously.

We don't really use debt when we're buying farms. But just as a risk free rate, you have to think of what's the competition in the market. There were probably investors five or six years ago that were buying farmland as a substitute for fixed income.

And now that's probably not the case anymore. It's more of an asset allocation. You actually have to underwrite returns on the farm over time, not just park it and try to earn some income.

We've always been a higher income buyer, or higher cap rate buyer. So rates today don't impact us, maybe, to the extent they would if we were targeting a 2 or 3% income return on land. But I think it's definitely playing a role in the market. But it will be less so than what higher commodity prices, how that would impact the market.

DOUG HENSLEY: Yeah. I agree with Brandon on that. Commodity prices are the more important factor at this time than interest rates are. I don't know if the market truly understands how much money has been made in agriculture the past two to three years. And from a brokerage and auction perspective in our business, the amount of cash that is coming into farm transactions is remarkable, actually.

I would say over half of the transactions that we have done over the past 24 months have been no financing at all. The lenders in the crowd are shaking their head. Because their biggest competition is cash. That's in bank accounts.

And so as we burn through that cash pile, I think interest rates are obviously going to play more of a role. It's a math equation, right? If the cost of capital is more expensive, it's going to pressure land values.

And I think the other thing that Brandon commented about, we're seeing the fact that you can go to any local bank and get a 5% CD right now relative to annual income from a farm is 2 and 1/2 to 3 and 1/2% in the Midwest. Depending on where you are, farmland is just not as attractive of an asset as what it was two years ago in comparison. And that's, again, on the annual income side of things.

So interest rates are going to pressure farmland. We haven't seen it show up yet just because there's been so much cash sloshing around in the countryside. And people have been able to really compete without feeling the impact of higher rates.

DAVID OPPEDAHL: Anything to add, Martin?

MARTIN DAVIES: I've got to think of something now, David. Well, maybe there's a slight difference from what Brandon does. We operate permanent crops. So typically the working capital for those permanent crops will fund on a line of credit.

So there is a consideration there. But I don't think rates have got to the point where it would create a significant change of thinking I think it's the indirect consequences which flow into what we do. So from a capital raising perspective, we are competing with other asset classes.

So I made a comment about the TIAA general account is very heavily weighted to fixed income. If you've got a 3% payout liability to your retirees, and you can get 450 basis points on a risk-free rate, the dynamics for investing in something which you're locking capital up in the long term change quite a bit. I think the ability of tenants to get access to working capital is a different environment than it was 12 months ago. So that is a consideration when you're looking at how secure a tenant's business is.

We don't typically use debt in constructing portfolios. We're looking to get the capital deployed as quickly as possible. And when a portfolio is fully constructed, we maybe look at strategic debt at that particular point in time. I think the current environment would give, maybe, a slightly different route on thinking on that than maybe in the last five years or so.

DAVID OPPEDAHL: So what are some of the challenges that you're facing to have successful farmland investing? Are there any we haven't really touched on yet that you can think about?

BRANDON ZICK: Well, the one I would mention today is just the ability to deploy capital. So while we maybe attend 300 public auctions a year in the 7th District, and we'll look at hundreds of farms privately, our success rate in buying those farms is actually very low. I think we'll, this year, look at over a billion and a half dollars in deal flow to invest $40 to $50 million. And primarily, our competition are those local farmers with a cash pile or whether it's farmers or local landowners that have 1031 money.

So that's a real challenge from our standpoint. Now there are always farms for sale. The question is, at what price are you willing to pay for them.

I don't have a brother that I'll be bidding against at an auction anytime soon. So $27 or $30,000 an acre doesn't cash flow in any way, shape, or form. So I think that's the challenge we've had over the past few years.

But we've been doing this now for over 15 years. There are always cycles. The ability to say no now will lead to the ability to say yes later to better deals.

So we're actually hoping that whether it's the interest rate environment or lower commodity prices do start to impact the land markets at some point, because we want to be an owner. We want to be a buyer. But it just has to cash flow at the right level.

So for us that's been the challenge. I think that will solve itself, like other commodity markets. Over time, there will be opportunity again.

DAVID OPPEDAHL: Well, why don't we--

MARTIN DAVIES: Well, just maybe to add to that. So it's been talked about quite a bit today. So we raised capital from global investors.

So one of the concerns I have in the US is anything that happens to further extend restriction on corporate or foreign ownership. I'm not entirely sure I understand the thinking behind that, because ultimately food security is a concern. It's the value chain and the means of exporting and so on which is the piece which brings the risk maybe. So that is a concern.

But then, again, that's something we deal with globally. So Australia's got the Foreign Investment Review Board, which has to approve any acquisition. Some people jokingly call it CHIRB, the Chinese investment review board. New Zealand's got the overseas investment office. Brazil has been a restriction on foreign ownership since 2010.

So if you're raising capital and you're looking to deploy globally, changes with respect to land law are a concern. But not only from a deployment perspective, but if you have a location where there is some reliance on institutional or corporate buyers for land from an exit perspective, you could be in a situation where the opportunities to sell are not so great.

Climate change is a major risk, which I think we have to just accept is going to be a major disruptor to the agricultural sector. And then the last thing is regulation. Bayer are dealing with, I think it's $11 billion of lawsuits around Roundup.

So what is the framework going to be for inputs that are needed in the agricultural sector? So there's no question we need to reduce the use of synthetic inputs. But anything which starts impacting significantly on a farmer's ability to produce is inevitably going to have some impact on returns. So those are the things which keep me up at night.

DAVID OPPEDAHL: Well, any questions from the audience? We got one over here.

AUDIENCE: David, thank you for constructing such an excellent panel. My question is really for whoever on the panel wants to weigh in. And that really is when you see the competition for farmland, let's say if it's not from another farmer or not from another farmer's brother, but let's say for development purposes, let's say for an Amazon warehouse or a Sam's Club or Walmart or something like that, is that competition sort of staying the same or increasing or decreasing or sort of what impact is that having on, let's say, the aggregate supply of farmland itself? Just curious.

BOB STEWART: It's very regionalized, especially for us being in the suburban area. It was houses that was really growing there for a while. And now it's distribution centers. So it goes in cycles, like everything.

But it's very regionalized. Because it may be on one intersection that something's going to happen. A mile down the road, it has no impact. So it's almost down to the tract, like one acre tract that matters and another one doesn't.

Because we have a site right now that we're trying to sell for that development. It's just because it got zoned. We kind of made it in before all of a sudden everybody didn't want those anymore if they're putting up big distribution centers.

So it's very specific. But it's interesting how the new economy, with all the just in time deliveries, all of a sudden warehouses is the new thing. And especially in our neighborhood, it was going to be houses. And now it's distribution centers.

DOUG HENSLEY: We've seen it in Central Iowa and in a few other places. I agree with Bob. It's very location-specific. In the Des Moines metro area, for example, Apple had built a server farm out west of

Des Moines. East of Des Moines there's Amazon warehouses.

And those things have had ripple effects in the Midwestern land market and probably a little more direct of an impact in Iowa, just because people who are selling in the Des Moines metro area, if they're farming those properties, would love to do what Bob did and establish a base of operation that's within a reasonable distance to continue to farm. In some cases, they're choosing not to do that. And they're going out and just making investments.

But it is very much a location-specific thing. I will tell you, I have a developer friend in the Des Moines market right now. And I go to church with him. And I asked him the other day how business looked a year out.

Because this is really the interest rate question to me, is whether the growing areas and economically developing areas will continue in the higher interest rate market. Because houses that are selling, retail and commercial that's happening in that area, it's been a big driver of land values out in the more rural areas because people have sold $50,000 an acre in the Des Moines metro and gone out and bought four acres for every one that they sold for. And if the 1031 tax deferred exchange market dries because development's not happening, that will have an impact out in the more rural area. So, again, location-specific, but I think it's going to have a bigger impact as well.

AUDIENCE: Thank you.

MARTIN DAVIES: Yeah. I think the renewable energy topic is probably the biggest disruptor. So availability of land per capita has been going down. And I think in the US, there's about 0.2% of land is lost on an annual basis to urban development, and so on.

But the left field one at the moment is renewable energy development just doesn't seem to have any connectivity to land quality. So the theory would suggest why on Earth would you convert prime quality agricultural land into a photovoltaic facility. But the renewable energy is all geared to the grid connection. So quality of land goes out the window.

And some of the aspects that you're competing with, I think the US isn't quite where some other levels are. But just as an example, and a data point for everybody here, so Poland, there is massive support for renewable energy. And on a rent multiple versus an agricultural rent, we're operating at 18 to 20 times for a photovoltaic site.

So we've been following through with opportunities on portfolio there. And we're getting a five to six times value uplift on the land itself. And that's a huge impact.

And decarbonizing electricity is going to consume far more land. My understanding of where things are in Illinois, it's nothing like that. But you're probably talking about two to three times multiple on the rent, I think, is what our local guys told me this morning. Yeah. But those are the disruption aspects, which I think you can't really contemplate right now.

BRANDON ZICK: Yeah, I think from our standpoint, development being in the Eastern corn belt, it's much closer to the population center than west of the Mississippi. So we've always been dealing with development pressure. We enjoy it. We want to take part in it.

When we buy a farm, we're always looking for what is the highest and best use. And in some cases, it's improvements to that farm to make it the most productive. And that's the best thing that it will ever be.

But there are other properties that will be industrial. They will be commercial. They certainly could be renewable. The question is, are you being paid the premium for giving up that optionality, either in the short term or the long term.

And I think I would love to see those multiples in Poland migrate here to the US. I think, at least in the Eastern corn belt, it's more like 3 to 5x than 15 to 16. That's something to think about the next time you negotiate a solar lease, I guess.

But from that standpoint, I think we are experiencing in the Eastern corn belt, and specifically in the 7th District, a lot of reshoring of manufacturing. Distribution centers are going up everywhere. Renewable energy, because of mandates that have been done at the state level, there are requirements that are almost unachievable unless they do this in mass scale. And in some cases, these mandates were voted on, so that's what people want.

What they don't want usually is the renewable energy right next to where they live. The same way they don't want a nuclear plant or a hydro dam. So what we're seeing is these are the results of that. It'll be close to distribution and transmission. And whether it's great farmland or marginal farmland or timber ground, that's almost irrelevant when it comes to the development and the pace at which that development is happening.

So nobody really scratches their head if an Amazon warehouse goes on really good prime farm ground. But if it's solar panels, people seem to get really upset. And I guess I question that a little bit.

But if this is what people want, you're going to have to give it to them one way or the other. And when you own the land, you actually have that optionality. That's why we want to be a land owner, not a land lesser or lessee. We want to go out there and then look to find the highest and best use of that property.

AUDIENCE: I've got a question for the panel regarding concerns about the future of renewable fuels, primarily corn-based ethanol, soybean-based soy diesel. I'm first and foremost a farmer from Western Iowa that's heavily involved in operations going intergenerational transfer. And we obviously like to expand. And what the outlook would be for land prices, similar to you, Mr. Stewart, and your operation.

But I also serve on the Board of the Farm Credit Administration and looking at the future of credit risk down the road. In fact, I often challenge our economists. They say don't tell me about what's happening today or history. Tell me what's going to happen. Kind of a big ticket, right?

But I see the current discussion on energy policy, it seems to be ethanol, soy diesel was the original solution to part of our environmental issues back almost 20 years ago. And in that 20 years ago, we've seen an almost unprecedented period of prosperity, as demonstrated by land values and the explosion of new homes, new machine sheds, improvements out in the country.

As a survivor of the '70s and '80s, my yellow light's really flashing right now, and then now the increase in interest rates. Do you see some real caution down the road? I just don't see our renewable fuels, corn and soybean-based renewable fuels having a place at the current energy discussion table. I just don't hear about it.

We hear about sustainability. We hear about carbon sequestration. But there is no linkage in our national energy discussion. It's an open-ended question. But I'd really, really be curious where you fellows are heading on that.

BOB STEWART: I share the same concern. I think it's because wind and solar is now the new greatest thing, or carbon sequestration. But I think ethanol and soy diesel have proven that they're good. It's just that they're not the latest and greatest. And it concerns me.

Because I think they are the renewable. We can feed hogs with the byproducts. It's amazing products that we can use out of ethanol and biodiesel. So I am concerned about that.

And I serve on the corn growers and different boards to make sure we keep that front and center. But I'm concerned that we're getting overshadowed a little bit by the next thing. So I do share that concern.

DOUG HENSLEY: I agree. 40% of our corn crop is fed. 40% of our corn crop is made into fuel. 20%, roughly, is exported. And so those are the three big uses of corn. And soybeans in a similar manner, a little different in terms of the division of where things are going.

But the renewable fuel standard created a big piece of demand for our corn crop in the Midwest. And maintaining that is going to be really important. Now I will say a lot of infrastructure has been created. And the system is very much in place now and is operating.

So I wouldn't say I'm fearful. But I'm paying attention to making sure that corn ethanol is still an important part of our fuel use.

DAVID OPPEDAHL: So I guess tagging on to that, sustainable aviation fuel seems like it's been coming up. Is that something you're anticipating kind of taking on that mantle going forward?

BRANDON ZICK: Certainly hope so. And I think food is still the biggest user of crops globally. So while ethanol and biodiesel have put a premium in the market, and I think net 20% of the crop is actually used for fuel because those DDGs are then fed.

But I don't think the sky is falling. I think from our standpoint, it's one of the reasons why we like row crops. Because you have optionality. It wasn't that long ago we were talking about cellulosic ethanol. And people were going to plant switchgrass instead of corn.

Well, if you own the land, you can actually do that. But I think longer term, there will always be more uses that are kind of at the fringe. But food is the biggest one.

The global population has not stopped growing. Other parts of the world, while you actually see more issues with long term sustainability of farmland because of poor practices that have been done. The US is really at the foreground of a lot of what's going on. So I think that there's more opportunity for growth in uses of grains than there is risk of loss.

BOB STEWART: I think it does bring up a point. When you're looking to invest in farm ground, we talk about location all the time. But having multiple outlets, it's great that maybe you farm next to an ethanol plant. But if that one goes down, basis deteriorates significantly.

So if you're open to wherever you're going to invest, having a river market, having all those, that's the spot to invest. So fortunately, outside of Chicago where we are, we have multiple markets. But when you're focused on just the one ethanol plant, that would be a concern of mine if I was going to invest next to it.

MARTIN DAVIES: Yeah. So I think there's an element of your question which is asking is what we do logical. And producing ethanol from corn, quite honestly, is just simply not logical. If you're going to produce ethanol from anything, you're probably going to produce it from sugarcane. And you can take the bagasse or the cellulosic byproduct and convert that into ethanol as well, biodiesel.

But logic doesn't apply. Policy frames what we do. And there's always going to be a transition.

So even if fundamentally you think using food material to produce energy makes no sense at all, there's infrastructure that's already been built and invested in which has got whatever time run to go on it. So there's going to be a transition period. Oil and gas are still going to be relevant because we're not going to electrify everything instantly.

I think the more interesting dynamic on use of crops for other things is, if you think about what needs to happen globally to solve the challenges that we've got, we need to reduce waste. We need to clean up electricity. We need to electrify as much as possible.

We need to use electric to produce hydrogen. So in agriculture, ammonia produced from green hydrogen is incredibly important. The next one is we need to substitute petrochemicals for stuff which is produced in agriculture, so producing plastics from biological material rather than from petrochemical source.

Ag needs to be shifted to a carbon sink. We need to change diets. And then the last thing is we need to capture and bury CO2.

But there's a lot of logic that sits in that. And logic isn't what happens when you have policy being applied. To the comment I made about renewable energy in Poland, the only reason why it's an 18 to 20 times multiple on ag rent is because there's policy which is supporting renewable electricity, which it doesn't actually make that much sense if you analyze it in detail.

AUDIENCE: Thank you.

DAVID OPPEDAHL: I'll remind the people online that you're welcome to put in questions as well. We have a few more minutes here if there are any additional questions here in the room. We have one over here.

AUDIENCE: I just wanted to, sort of getting back to the presentation from this morning, and how do you see the graying of land ownership affecting the markets that you're operating in.

BRANDON ZICK: Well, I'll start. I think it's important, when we talk to our farm tenants, if you ask them-- there's a lot of statistics about the average age of the American farmer. Most of them view the real concern is what's the average age of their landlord.

Because when their landlord passes away, that's when most farms transact. It's not opportunistic. It usually comes down to liquidity or settling estates.

And so the buyers in the environments, in the markets where we are, are usually farmers. But those older landowners, there's tax policy behind why they don't sell until they die. They want to step up in basis.

So there's real penalties for selling early. And when farms trade, there's no vacancy, really. Every farm is farmed every year.

And once it's sold, it's kind of a free for all for who's going to farm it next. Usually, if it's a farmer that buys it, they're the owner, and they're going to direct operate it. If it's someone like Ceres that buys it, we're already working with a tenant pre-purchase that they're going to operate it if we own it.

So the mix of the landowners are, I think it's still just generational. And there's a reason why there's not a lot of debt in the system. If an estate owns it, to Doug's point, it's tough to have people get together for Thanksgiving dinner. How about all co-signing on a mortgage for the farm? It doesn't happen.

So I don't think the universe of owners is going to change much. But as an attractive investment, there will be more people like us eventually buying land. But that's just the way the market is going to be. I don't take umbrage in it either way.

DOUG HENSLEY: I would agree. I think the bigger concern is the age of the grain of owners versus operators. A lot of the clients that we represent, they may be in their 90s, or in some cases over the century mark. And they're leaving the farm to their kids, who are 80.

And we have really long term relationships with our farm operators that we're managing properties. And if there should be retirement of a farm operator, and we're going out to the marketplace and making a farm competitively available-- which that's not done on a super regular basis. But when it is, it's just like Brandon said, there may be 30 or 40 farm operations that are competing to pick up that next piece of land that's available.

So the graying of farm operators, I understand the concern in terms of average age. But out in the countryside, particularly in the Midwest, it is not a significant concern that I have. Now when you go out much further to the West, and farming operations really grow, and in Dakotas, and you just have fewer operators, that's where the depth of farm operators is not as great. And so in those cases, you're probably seeing, in the fringe areas, where it's maybe more of a concern.

AUDIENCE: I had one more question if you'll permit me. And it might be more for Martin than anyone else. But weigh in.

When Nuveen is looking at your big portfolio of investments-- you were talking about climate change and how that may impact your sustainability versus profitability-- do you ever try to get in front of climate change and maybe look at land that now is not very profitable? But when the climate does change, based upon the best projections that you do have-- it may be more mild 20 years from now than it is today, it may have more rainfall than it does 20 years from now than it does today-- do you ever sort of try to throw a hail Mary, or use the very part of your portfolio that's the riskiest, and try to project into that and maybe buy farmland in Canada or something that you think may have a much more mild climate than today? Just curious.

MARTIN DAVIES: Yeah, so climate-- I think of it in this way. So think of existing assets which you own, which you don't want to own in the long term, or you could change what those existing assets are growing, so there's definitely opportunities for that globally. There are assets which you simply don't want to own.

So let me use an example. Brandon doesn't like pistachios in California. That's quite evident. He probably likes eating them with some nice, cold beer.

BRANDON ZICK: Wine, too, Martin.

MARTIN DAVIES: Wine as well.

[LAUGHTER]

I like it. Yeah. So there was no regulation around water in California. So Sigma Sustainable Groundwater management agreements came in about five years ago. So every groundwater basin in California has to be in balance. So the abstractors of water have to agree on recharging the aquifer, or they reduce their removal.

So if you own assets in an aquifer where it's in balance and there's no way of recharging the aquifer with surface water, and you know you're going to have a reduction in what you do on that property, the income earning potential, you've just got to try and find an alternate use for it, or you've got to sell it. So there is definitely an opportunity to be ahead of the game on properties.

So just another example. We own properties in Northern New South Wales in Australia around a place called Marie. It's a great place if the climatic conditions are in your favor, because you've got scale. You can grow decent yields of wheat, canola, chickpeas, and so on.

But in my view, that area is just challenged climatically. So one year in five, you get a complete write off. So do you want to own land in that area in the long term? No, you don't.

So you have to choose the time to sell that land, which is why I made the comment about using data and information in your underwriting. We try and use 50-year climate projections down to an individual crop type to try and make sure we're not investing in areas where there is a problem in the long term, or equally, to get rid of stuff which we don't want to own in the long term.

And fortunately, we don't have too much of that sort of stuff. But inevitably, we got 600 properties in the global portfolio. You're going to have some things you don't want to own.

And we have sold properties because we're concerned about the long term water trajectory. The interesting one is what optionality is there from a cropping type perspective. Because you've got just a general increase in the number of day degrees.

So I live just outside Cambridge in the UK. I have a vineyard outside the back of my garden. Like, 10 years ago, that would have been unheard of. English wine, even today, probably doesn't come up to the mark on a Napa wine. But hey, work in progress.

So the scientific research suggests that globally, the cropping zone in the northern hemisphere is going to move. I'm going to give you this in metric 1,200 kilometers north into the boreal region, so you mentioned Canada. The problem you get into, though, is OK, in theory, you can grow the crops.

But are the soil types correct? Is the infrastructure there available? And invariably, the answer to that is no, it's not. But if you look at what's happening in Europe, the champagne houses are all buying land in the south of the UK because you've got very similar soil type. Yeah, because they're all concerned that in 15 years' time, in the Paris basin, it's just going to be too hot to grow high quality chardonnay and pinot noir and pinot minot grapes for champagne production.

But that's an opportunity for somebody. Because there's an arbitrage on value. You're going to take land which is producing row crops in the UK, wheat, canola, and so on, and you're going to plant a vineyard on it, huge gain in uplifting value. So it's just trying to use the technology that is available to give you a sensible projection on what's happening from a climate perspective.

AUDIENCE: Interesting.

MARTIN DAVIES: Wine grapes in the UK.

[LAUGHTER]

AUDIENCE: I'd like to ask, I think, Brandon. But anybody is welcome. In acquiring farms, what is your most common environmental concern? And as kind of a sidelight, what is the smallest acreage of farm that you consider in acquiring farms?

BRANDON ZICK: I'll answer the second one first. So we've got 165,000 acres. We have an evergreen fund structure. So we like doing bolt on acquisitions to existing farms.

So where we might have started with 80 or 100 acres in a township, today we own 3,000 or 4,000 acres in some instances. So doing $1 million or a half million dollar bolt on, while inefficient from a portfolio management standpoint, can be really efficient from an ownership standpoint longer term. So we don't really have a minimum size. It's really if it's strategic or versus if it's on an island by itself. That'd be different.

From an environmental standpoint, we really focus on is the farm going to be highly erodible, can you farm it in the way that you'd like, given certain restrictions that could be out there, farms that have soil types that would be great for irrigation. Really, it's more of an environmental limitation. Can you obtain irrigation in that area, both is there availability of water and can you get a permit.

So that's a lot of the diligence we're doing pre-purchase as it relates to environmental. In most cases, we just try not to buy areas that were previous building sites, things like that where you'd have, more likely, some type of waste. It's usually vacant land. It's active farmland. We're not buying rainforest or timber ground and converting it to tillable and any regulations that would come to that or come with that.

So really, it's kind of low hanging fruit is what we're looking for, farms that are for sale. They've been farmed. We're going to work with a local farmer. We do what we need to do from the regulation and approval standpoint. But it's usually typical, vacant farmland.

DAVID OPPEDAHL: Any other comments on that? We're getting close to the end here. One more quick question in the back.

AUDIENCE: Hi. Yeah. I'm curious the discussion on ecosystem services. And if we ever figure out how to assign a value around whether it's carbon aquifer recharge, the benefits that farmers provide with wildlife habitat, promotion of biodiversity, as the demands of climate economics emerge. Do you guys see any scenario where the enduring value of farmland as a renewable resource will redefine highest and best use, which seems to drive so many of the decisions? [INAUDIBLE] actually create a longer term view?

BOB STEWART: That's been tried in the suburban area for open space. So they will sign easements to say I'm going to keep farming it for 20, 30 years. So that's been tried.

It's hard to place a value on that. Because you don't know what's going to come around the corner next. If I were to sign on one of those and say I want to protect the land around my farming base, it sounds like a great idea until the Amazon guy shows up the next day. And I'm, like, I should have taken the trade.

So that's hard for people to do. It works if you're going to stay there for the next 100 years or wherever you sign the contract. But you may have just ticked off your heirs because, well, Dad did that, and we could never sell, and we can't leave now. Because you've locked them into staying there. And they may become that island that nobody wants.

Because what we see in the suburban area, if you don't keep kind of selling when the stuff comes out, and you are the last 160 in Naperville that never sold, it may not command that value that the other guy's got. So it's a strategic thing. But they have tried that in terms of open space.

MARTIN DAVIES: I'm happy to have a go at the carbon ecosystem service question. OK. So let's tackle the biodiversity one first.

So in the US, you have legislation which dates back to the wetland legislation in the 1970s. So you have the ability to monetize the restoration and protection of wetland habitats. So mitigation banking is the way it's been commercialized. So there are opportunities to actually monetize improvements in biodiversity that exist today. OK, maybe that doesn't apply to all sorts of locations, but there are certainly parts of the delta, some of the coastline of the Bay Area in California, and so on where there's opportunities for monetizing improvement in biodiversity.

If you look outside the US, there's a biodiversity credit market in the UK. So it's similar to mitigation banking. A developer has to offset the damage they do to the environment on the location where they're doing their development. There's a biodiversity credit market, which is developing in Australia. There's already a biodiversity credit market in New South Wales.

Yeah, so COP16 was in Montreal last year. I don't when the next COP is, the biodiversity COP. But there will be at some point in time hard targets for biodiversity improvement. And corporates are going to have to find a way to actually fulfill the requirements that they have in that respect. So there probably is going to be further development of markets for biodiversity credits, and so on, where a landowner can monetize that value.

So carbon, this is a bit of a tricky one. Doug and I were talking about this earlier. So there is this notion that a farmer can increase soil carbon. And you can monetize that by selling voluntary carbon credits.

No question at all you can do that. But what is the permanence of that sequestration and the stable carbon in the soil? I was talking to a professor at Oxford University about a month ago about this concept of investing in agriculture.

And he very quickly just absolutely blew my great ideas up by saying that biosphere and the atmosphere are in equilibrium. So anything you put out of the atmosphere into the biosphere, it at some point in time is going to go back there. The only way you solve climate change is by taking the carbon dioxide that's in the atmosphere and putting it back in the lithosphere, which is where it came from originally.

So carbon credits are-- I think there's a bit of a wild goose chase going on, if I'm perfectly honest, in the agricultural sector. So what you will see, I think, is the supply chain, the food supply chain will conclude that 60% of the carbon footprint of the food value chain originates at the primary production level. So the processor or the retailer is going to be coming to the producer, because that's part of their Scope 3 emissions. And they're going to be saying, OK, tell me about the carbon intensity of your production.

So all the things that farmers are being led to believe that they need to do to create voluntary carbon market credits which they can sell, they are going to need to have that to inset within the food value chain. And I suspect we'll reach a point at some point in time. When that is exactly, I have no idea.

But I suspect it's probably somewhere in the next three to five years, whereby somebody, ADM, or Cargills, or whoever it is will be asking a grower, tell me about the carbon intensity of the soybean and the corn that you're producing. Oh, OK, it's not as good as I thought it may be. So I'm going to pay you a discount for that, whereas somebody who's got a very low carbon footprint in their production will potentially get a premium. So the carbon market and the voluntary carbon market issuance is going to translate into value within the food supply chain. And I think what was happening at the moment isn't necessarily sensible.

Now that said, maybe this doesn't apply to the Midwest because of the topography and nature of the land type. I mentioned earlier, mile by mile, squares well, the highest cropability that we have across all of the assets that we have globally is in the Midwest. But we have locations where 25%, 30% sometimes even up to 40% of the area of a property is not actually cropped area. So there's no question whatsoever that in a property like that, there will be opportunities to reforest or aforest and actually bring in permanent value from carbon sequestration.

Sorry. That was quite a long answer. But you've asked that question several times. So I can see you're interested.

DAVID OPPEDAHL: Well, we still had a few minutes. So I appreciate everyone on the panel providing their perspectives. And it's been very enlightening. And I think we can adjourn after our Vice President, Rick Mattoon, comes up and gives us some closing remarks. So thanks much to the panel.

[APPLAUSE]

[SIDE CONVERSATIONS]

RICK MATTOON: [INAUDIBLE] I chase people away when I come up. It's always reassuring when people flee as soon as you start coming up to the podium.

So I'm Rick Mattoon. I run the regional analysis and engagement unit and also the Detroit Regional executive. And first of all, I just really want to thank all of our presenters today. This was really a terrific program.

I can tell that by just how many notes I took. So please join me in giving a round of applause for our presenters. I just wanted to show you a couple of takeaways. Now I have to admit that my knowledge of agriculture in comparison to David's could probably fit in a thimble, all right?

So a lot of what I take away may or may not necessarily be completely accurate. But I thought I'd share some of the impressions I came. The first was overwhelming pride of being a Midwesterner and realizing how much great research and data work comes out of the land grant institutions within this region. It's really terrific, whether you were educated or spent some time at the land grant institutions around here, it's terrific to see that, really, this is the cutting edge place for really understanding a lot of these important developments that are happening within agriculture. So that was certainly a source of pride.

The second thing I was really interested in was this sort of sharp increase in leasing activity, which I wasn't really totally aware of, and just how quickly it's happened. And, again, this interaction between the aging and the demographics of ownership, so I think that's something else that we're going to probably want to pay some attention to to see how that plays out at this point in terms of how this sort of who owns land and what the dynamics are, certainly something for us to pay attention to.

I think probably one of the overwhelming themes that came away with is this intersection now between energy and environmental uses in the nexus with agricultural land. This seems to be, like, this is kind of at the inception point for it. So, again, I think more research and more sort of understanding of this is really going to be important going forward.

And I think that one thing that I came away with, as I developed this entirely kind of happy image in my mind particularly of sheep happily running between solar panels and fields throughout the Midwest and thought this would be a great visual image for thinking about sustainability, agriculture, and new energy opportunities.

The last thing I also was very interested in is this notion of the impact of energy and environmental infrastructure on property values. I think for a lot of people, this is one of the things that, again, is kind of a research thread that I'm particularly interested in. Because I think for a lot of people, that's their concern, right, that there's some sort of new infrastructure that's going to be introduced, it's going to affect their land value. In some ways, they're going to almost view this like a taking, right? And so I think the idea of understanding more specifically who could benefit from having this infrastructure put in place versus who could be hurt by this infrastructure, I think, again, is a really interesting topic.

And then the last one, of course, has to do with this sort of very detailed breakdown of where foreign ownership exists. I think, again, relative to what you hear in the press, this was pretty eye opening to me to see where this concentration was. Although perhaps I'm now developing a somewhat neurotic fear of the Canadians, who I previously viewed as our friendly neighbors to the north but now perhaps are invading us.

But I think, again, that was a really interesting take. And I really appreciated the ability to get really a sort of granular understanding of who owns the property, what are they doing with it. The structure of it was really valuable.

And lastly, I just really want to congratulate David Oppedahl for putting this program together. I've had the great luxury of having worked with David for almost my entire career at the Chicago Fed. David has really done a wonderful job of bringing the most important issues that are facing the agricultural sector to the fore on a consistent basis, through these conferences, through his own research. And really, he's an incredible asset to us at the bank and somebody we're very lucky to have. So please join me in congratulating David.

[APPLAUSE]

And with that, you're free to go. So as I move towards you, you can run away from me like the panel did. So thank you very much for coming.