Calgary, Canada, October 09, 2011 --(PR.com
)-- Agcapita Farmland Investment Partnership will be presenting at the Alternative Investment Conference in Calgary on January 28th, 2012. Risk management and asset allocation in the context of hard asset investments like farmland will be the topic of discussion. Stephen Johnston, CIO and founder of Agcapita, stated, "Farmland has some unique and increasingly useful financial characteristics – it is an effective inflation hedge, increases portfolio diversification, has a strong commodity price linkage and has high absolute returns with lower risk than equities."
Agcapita's research shows that farmland is an:
Inflation Hedge: 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. 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 $550/acre (550% total return and 176% in inflation adjusted terms), cash held in a money market account barely kept ahead of inflation (6% inflation adjusted return) and the S&P 500 index returned less than 2% per year (a loss of almost 50% in inflation in adjusted terms).
Diversification Tool: It has become more difficult to obtain diversification in the current market with high positive correlations between virtually all asset classes. This is a very unusual state of affairs. There are very few uncorrelated assets classes accessible to the average investor. Farmland has a small negative correlation to stocks and a high correlation to inflation.
Commodity Price Linkage: Over the medium to long term, farmland returns are directly tied to commodity returns and operating margin expansion at the farm level. We believe the world is still in the early stages of this current commodity bull market. When agriculture commodities prices are compared against their previous inflation adjusted highs they are significantly discounted implying scope for further increases:
- Corn is US$ 5/bushel currently compared to US$16/bushel in 1974
- Wheat is US$ 7/bushel currently compared to US$27/bushel in 1974
- Canadian farmland is C$ 690/acre currently compared to C$1,100/acre in 1981
High Absolute Returns with Lower Risk than Equities: Return data for US and Canadian farmland shows absolute returns that exceed the S&P 500 index but with around 60% less volatility. This combination of good absolute returns with low volatility (risk) is challenging to find in most assets classes.
Agcapita is Canada's only RRSP eligible farmland fund. Agcapita believes farmland is a safe investment, that supply is shrinking and that unprecedented demand for "food, feed and fuel" will continue to move crop prices higher over the long-term. Agcapita allows investors to add professionally managed farmland to their portfolios.