On a spring afternoon, Vieth, 54, barrels along backcountry roads in a Jeep Cherokee in Indiana and Michigan to scout a fruit orchard and corn and soybean farms to buy.
“When I told people I was leaving to start an investment fund in farmland, they said, ‘You’re doing what?’ ” Vieth says. “It will always be difficult for Wall Street firms to understand. It’s not like buying stocks on a computer.”
It’s much better: Returns from farmland have trounced those of equities. Ceres Partners produced an average annual gain of 16.4 percent, after fees, from January 2008, just after the firm started, through June of this year, Vieth says. The Standard & Poor’s 500-stick index dropped almost 1 percent in that time.
The Soros model
The bulk of the returns are in rent payments from tenant farmers who grow the crops and from land appreciation.
Investors are pouring into farmland in the United States and parts of Europe, Latin America and Africa as global food prices soar. A fund controlled by George Soros, the billionaire hedge-fund manager, owns 23.4 percent of South American farmland venture Adecoagro.
Hedge funds Ospraie Management and Passport Capital as well as Harvard University’s endowment are also betting on farming. TIAA-CREF, the $466 billion financial services giant, has $2 billion invested in some 600,000 acres of farmland the world over.
“You’ve got to buy in a place where it rains, and you have to have a farmer who knows what he’s doing,” says Jim Rogers, 68, chairman of Singapore-based Rogers Holdings. “If you can do that, you will make a double whammy because the crops are becoming more valuable.”
The growth in demand for food — spurred by the rising middle classes in China, India and other emerging markets — shows no signs of abating.
So many investors have rushed to capitalize on food prices in the past three years that they may be creating a farmland bubble. The Federal Reserve Bank of Kansas City said in May that farmland prices had surged 20 percent in the first quarter compared with a year earlier. “Yes, farmland will be a bubble again; all agricultural products will be in a bubble again,” says Rogers, an investor in Agrifirma Brazil.
Hedge-fund manager Stephen Diggle calls farming the ultimate safe haven. Diggle began buying farms with his own money in 2008 after Lehman Brothers filed for bankruptcy in September of that year and the S&P 500 plunged 43 percent in the next six months. He bought 8,000 acres in Uruguay, three smaller plots in southern Illinois and an 80-acre New Zealand kiwi-and-avocado orchard.