This year may illustrate, quite well, a significant short-term risk to investing in farmland – weather. Meteorologists have warned of an impending El Niño weather system, which will likely affect global crop yields and prices. Societe Generale analysts have even established an “El Niño Commodity Index” tracking the three commodities most likely to be affected – coffee, cotton and cocoa, while market conditions for grains are expected to be significantly bearish. Farmland investments have already been limited to a few larger investors like Canada’s C$219 billion Canada Pension Plan and the UK’s £15 billion Pension Protection Fund. However, interest in the sector appears to be increasing. Aquila Capital surveyed 71 institutional investors in Europe in October 2013 with an average of 1.3% of their portfolios in agriculture and found that 23% were interested in increasing their stake in agricultural holdings. Detlef Shoen of Aquila also states that El Niño events can be opportunistic and provide available properties for purchase when farmers go out of business. Aquila is finalizing raising $400 million for investment into Australian dairy farms. Funds such as Insight Investments, GMO Renewable Resources, and Aquila Capital discuss key strategies for investing in farmland such as diversified crops across differing geological locations, the development of underused agricultural land, and bringing in young silent partners with capital to operations with aging farmers with no successor.
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