good afternoon welcome to capital account i'm lauren lyster here in washington d.c. these are your headlines for wednesday july twenty fifth two thousand and twelve the federal reserve is moving closer to action the wall street journal reports that recent disappointing economic news has turned conversation to how and when to move inside the fed so if you're worried about how and when to move in the case of inflation or other money printing manipulation we'll talk about a hedge and timothy geithner was on capitol hill today answering questions about how he reacted in two thousand and eight when problems about why were brought to his attention and he alerted u.k. authorities. we brought those concerns to their attention and we filled in i still believe this it was really going to be on them to take responsibility for fixing this. ok it's on them meanwhile bank of england officials reportedly raise concerns

about the london whale back in two thousand and ten internally why well perhaps because it would then this time mean u.s. regulators that were in charge of j.p. morgan so are you sick of all of this if you are we're talking about farmland today as a way out of all of this nonsense will speak to a man who manages the largest farmland fund in canada plus speaking of investing in farmland how do you factor in the risk of drought seeing as the us is in the midst of the worst one in nearly half a century we'll talk about it let's get to today's capital account.

so where do i begin affairs of inflation that's property rights chasing yield in this zero interest rate environment full of fat tail risks central banking manipulation currency debasement these are all reasons why many guests who come on this show have talked about alternative investments and safe haven investments and many of these then are investments they can thrive outside of this increasingly illusory financial system one investment that often comes up in conversation is investing in farmland or owning a farm but it does not end there and i will since that day stuttgart if you. are you have been our. currency has been debased and farmland is a real tangible asset will hold its value it's very difficult to make going to decisions but i would say if you and i work for a boy yourself on the back it almost gets the point where you have to go you have

to go so low tech and so extreme in some ways in order to find markets that are relatively untouched. but how in the world do you get into farming if you don't come from a farm what if you don't even want to ever pick up a shovel there's that issue there's also farm land prices they've been rising in north america and that hasn't gone unnoticed it's inspired the word for bubble in the u.s. business media and inspired network news stories like this one from back in january and an average price of sixty seven hundred dollars and i think it's worth along this stuff just like black gold and black gold is what you're holding your hand it's not oil that's dirt and you can get rich off of it and you can get rich off of it that's correct. so if mainstream media is doing stories featuring dirt as black gold does that mean the rides over or if not where is the ride good well lucky for

you lucky for me and all of us i spoke to the man who manages the largest farmland fund in canada to find out all about it he's brad's parker co-founder and vice president of aston boy a capital he joined us earlier from a gore financial symposium in vancouver canada take a look thank you so much for being on the show today. oh it's a pleasure being here. absolutely the pleasure is all mine because it's not every day i get to really get into the nuts and bolts of farmland so let's first talk about the recent rise in the value of farmland and what's driving it our viewers are looking at a chart showing the increase in value on three canadian prairie's and this is certainly the trend that we've seen in the us too so my question to you is there a real need for this farmland or is the rise in value the result of tremendous liquidity for example at a time that financial assets have been inflated and investors are turning to

alternative investments like farmland. well the real reason for the rise in farm land values is that farmers are making more money for month is a true reflection of farm profitability and obviously we have seen a few investors come into this space but ninety in my jurisdiction where i'm working in substantial and in western canada ninety eight percent of the formal introductions are are between farmers and most of the times that i lose a bid for my property it's to another farmer it's not to an investor and so that's a really interesting part of this phenomenon prices are rising because farmers are making more money interesting i want to know about this more broadly because i know you do a farmland in saskatchewan but i know you probably look at farmland everywhere and i'm wondering about what some people have called a bubble because of the recent rise in farm land value widespread some contend there isn't much appreciation left especially if we experience

a very real anticipated credit deflation some have called farmland a bubble here is a look at the average value per acre in canada and in regions in the us of farmland is there anywhere mr farquhar in the us or in canada where you think farm land prices do need to come down significantly or are in a bubble or just simply don't have anywhere higher to go. well i don't think there's a bubble necessarily but i do see jurisdictions that are more highly priced than others our the focus of our business is instance catch one because that's where we find the deepest value rental yields are highest and the value per acre is lowest based on a productivity comparable analysis that we have done but there are jurisdictions and i would identify montana and alberta where i find the price to earnings ratio sort of speak. for my version of the price to earnings ratio seems out of

whack where rental yields are low and and where earnings just don't seem to support the value of the land and maybe there are other factors at play and those are both oil producing regions especially in alberta and i think that's partially responsible for for some of the value difference but even in areas in my home province of saskatchewan where we have oil production we just don't see the kinds of valuations we see in alberta our focus is on buying farmland based on agricultural fundamentals and and making sure that that will pay for the long term because if you overpay on an investment it's really hard to dig that's one of the sort of mike mike the rule of farmland investing never over paper because it'll take you forever to dig out of that could take you twenty years ok no pun intended worth taking out i want to get further maybe pun intended i want to get further into this a dirty business but somebody has to do it i want to get further into your business

model a little bit later in interview i still want to speak a little bit more broadly about farmland and what data there is are they can support the value of farmland based on fundamental demand for food and not just as an investment. well what we do is we look at we look at crop yields and so we so over a life cycle or a or a crop rotation cycle because farmers usually can't grow the same crop year after year after year on the same ground they have to rotate their crop in order to control for diseases and so in in my home province where we'll have a canola pee wee rotation in the us corn belt you might see some kind of rotation involved in corn and soybeans and so we'll look at the that full rotation and what the underlying economics are what does it cost a farmer to produce a crop and so what is

a break even commodity price for that crop and and we'll look at that full cycle and see can a farmer pencil out a profit and my general rule of thumb is that farmland is good value when it trades for about three times and you will revenues it's hard to it's hard to look at earnings in agriculture because there are so many different ways to calculate it so that the best measure the easiest measure across jurisdictions is. an earnings to land price multiple and a three times multiple says that land is affordable when you get up into the sixes and the seven times multiple you're really starting to overpay and that's one way to look at it and then a second way that will look at it is by looking at rental yield if i buy a piece of land for one hundred thousand dollars what can i rent it for if i can rent for six or seven thousand dollars a year and get six or seven percent rental yield that represents good value but if i'm in say i was paying twenty two thousand dollars an acre and and renting it out

for a two percent rental yield i think that represents over value that's paying too much and less the there's some other way that a farmer can can pay more and farmers farmers are good negotiators they won't they won't pay more than. and they can to get a piece of dirt farm so get even if you're an investor maybe get farmers to negotiate for you my question that doesn't really matter as much what the fundamental demand for the crops or the food are if there is significant demand for safe haven assets as a form of protection from currency debasement or a breakdown in the financial system for example. well i think both things matter the the first. form profitability matters and value matters because that's the fundamental analysis but on the sector basis there are

other reasons to own farmland farmland is a good protection and against inflation. doesn't go to zero uniform and doesn't doesn't cheat on its earnings statements and so there are really good reasons why investors are fleeing to foreign land as a safe haven a place to park their money in till there are better other opportunities in the market so there are i see both but the number of investors investing actually investing not just talking about investing but actually investing in farmland is still very very small. and they would represent less than five percent of the market in most of the markets that we look at that's interesting is that just for your markets in canada or is that more widespread figure if you know. well there will be a mostly a canadian type number but i think it's highly a plausible in in the u.s. as well you know there are nine u.s. states that are that disallow institutional investment in farmland

and individuals from from abroad may be able to own farm land and in canada there are some similar restrictions and even in those jurisdictions that restrict big pots of money from coming in there are still rising farm land values and that comes back to that farmer to farmer transaction argument that i made earlier that the market is really driven by farmer economics and we see that everywhere we look certainly in north america. speaking of farmer economics i have to point out commodities guru frequent capital account guest jen rogers has famously said in past years that in the future is going to be farmers driving lamborghinis not wall street brokers in light of that you should know that says scott two one canada has recently gotten this its very first pour steel or ship according to mr farquhar it's just anecdotal evidence rather a side note for

a region that is largely driven by agriculture mining and natural resources and the sector is built around that and still ahead as a hedge against inflation as insurance as a hard asset how does farmland compare to gold we'll talk about it after the break but first your closing market numbers. what drives the world the fear mongering used by politicians who makes decisions to break through get through to be made who can you trust no one who is you who view you with the global machinery see where are we heading state controlled capitalism school sessions when nobody dares to ask we do our t.v. question more. you know sometimes you see a story and it seems so you think you understand it and then you glimpse something

else you sure see some other part of it and realize that everything you thought you knew you don't know i'm tarp is a big. story when you. look into the alona so you'll get the real headlines with none of them or see the problem with the mainstream media. today is that they're completely disconnected from the viewers and are what actually matters to those viewers and so that's why young people just don't watch t.v. anymore if they want news they go online and read it but we're trying to take those stories that people actually care about and transfer them back to t.v. .

welcome back we're talking farmland and here is a look at cumulative real returns on farmland compared to other assets over the past decades but how has it compared to other safe haven assets and hard assets well let's hear more from brad parker co-founder and vice president of ass and boy a capital. as a hedge against inflation and a hard asset and as insurance farmland sounds really similar to what people say about gold as an investment but as opposed to gold farmland has yield in the form of cash right so how does this work. well it's it's really quite simple gold if you own gold it sits there and looks shiny and you have storage costs you have to be maybe put in a safety deposit box or were buried in the backyard maybe that's

a cheaper storage method but what with farm land you don't have storage costs you will have some property taxes but it produces income every year produces a crop it produces a useful commodity that can be sold in the market so you can generate an income either by farming it yourself or having someone farm it for you or simply by renting it to a farmer who will farm it on his own account and that's just not something you can do with fooldom and that's why i like farm land we've got some we've done a lot of research into the relative value between farmland and gold and and there's a high degree of correlation between the two over over many decades and so you can i've seen some charts that. show the price of farmland in ounces of gold and today if you're gold bug and you like where gold is valued and you think it's going a lot higher well farmland is it represents very good historical value per ounce of gold today and farmland would be a great place to park your money for the long term and and remember and i'm sure

you talk to equity investors and equity investors most of their return over the last decades has really come from the dividend yield form and has a dividend yield that gold just doesn't and that's an important piece of the overall picture that investors need to keep in mind that's interesting and you're talking about the different ways that you can invest you can own the farm and farm it you can hire somebody to farm on your land is there a way that that minimizes risk into your investment in farmland or where there are more rescues for example to use the gold comparison there are different ways to invest in gold and maybe investing in an e.t.f. . your gold isn't as safe as if you own physical gold you know an e.t.f. you still have a claim what if that gold isn't fair or what if your money is in a brokerage account and it's stolen as any of p.s.g. or i am after lobel so is there anything comparable when you're looking at investing in farmland. yes there are really two ways to invest in

a farm and the first is to go and buy the land directly yourself and put your name on the title and that's that's one way to do it but you'll be bound by the geography of your holdings so you know if you've got one hundred thousand dollars to invest in farmland that may only buy you a few acres in one location i think a better way to invest in farm land in this is the basis for the fund that we operate is to invest in a structure like a foreign land return real estate investment trust investors are familiar with these in commercial and residential real estate and really what we're doing is the beginning of creating the first farmland region in canada we don't we don't call it a reach but it's a farmland limited partnership and so instead investors own units in in our fund and the fund itself holds the title to the land and the advantage to that is that you get diversification so you're you're not just tied to one plot of land in one

location that could be flooded out so you know you get a farmer to farm your land for you and he gets flooded out well you're one tenant isn't paying rent this year and that's a big problem. with a with strategy and a diversified strategy you can hold land across a large geography our land hold we own one hundred fifteen thousand acres across about three hundred thousand square kilometers that's a huge area and it means that we're diversified against weather risk so some of our flour farmers might have drove one year but all of them want and some may have some flooding issues but all of them won't so you'll never run into a situation where your revenue goes to zero you'll have you might have a tenet or two in trouble each year but it doesn't impact your whole portfolio the way it impacts you if you only own a single property or a few properties in in one geographic area so i think the fund of pro-choice is best it's a little bit different for for some investor. as who like to hold title but i think

it's a better approach and there are ways to evidence to investors that that the fund truly holds the title and and and give them the peace of mind. that they're looking for that it's not going to disappear or that that the fund isn't just going to fund managers not just going to go on with things and. i think farmland is as good an investment as anything these days that's that's where certainly where i'm putting my money and of course i manage the fund but it's where my personal investment is going as well that's interesting to know and last question if we got cut off i apologize but i do want to ask we in the united states are in the midst of the worst drought in nearly half a century so how do you factor in a risk like that and you kind of mentioned it with the fund but it in general investing in farmland what kind of risk does that pose. well it's definitely a risk to give you an example from from our own history two years ago we had what they called for one in five hundred year reign of event and so we had some. rain

with fifteen inches or with three years worth of rain in a month and lots of farmers were unable to get on their fields and get their field seeded so both houses of the acres that we owned in that area scatch one did not get seed it did we have some collection issues well if you guys were a little bit slow but we collected every dollar of rent that year. and there were a couple of situations where we have to get a share of the crop where where our diversified position really muted the impact so it you know we maybe had a five percent of our revenue affected by this rain event that affected fifty percent of our farm land holdings and so that's the that's the diversification element that i talked about and you know it would be the same for a land owner who owns farmland in missouri if they only own one plot and there's a drought they're going to have trouble collecting their rent this year but if they own a diversified portfolio of land spread across

a large geographic area that will that will dampen and the impact from from the drought event and that you need to be prepared for that the biggest risk by far and in agriculture is weather and weather will affect you differently every year you just need to be prepared for it and when you say if you have your farm in a place where there is a drought you're going to have trouble collecting rant is that because you're farmers are broke they're not making money and their risk of going under as they can't profit from their crops and that's a real risk. well it's a potential risk and. anyone who's a landlord likes to have highly successful tenets and of the same is true in agriculture one of the one of the one of the advantages you get in a fund is the professional managers who can help screen farmers and screen tenants too so that you've got the best possible set of tenets and and you're not just. a priest taker you know you're you're our objective is to work with the top twenty

percent of producers in our jurisdiction and that's paid off in spades for us when farmers run into problems producing interesting and just to touch on regulations would reform our regulations make this space easier to invest in for folks i know there are regulations that favor agribusiness and in some states in the west there are regulations that make it so that you have to live on the farm that you own or you have to farm that yourself. certainly regulations have an impact in one where where i work for thirty years and then in two thousand and three you had to live in the province to own farmland and so if you moved away you were a bureaucrat would call you from the government until you had to sell your land and that really depressed land values and that's what we really saw as an opportunity that when the government fix those rules in two thousand and three it created an opportunity to invest in in depressed land depress prices and.

that we had the expectation that we would open form going forward and so that you can have positive and negative impacts from regulation opening things up will allow more investors to participate and i think introduce more capital into the agriculture sector which has huge capital requirements to hugely capital intensive business and not all farmers are able to grow by their own bootstraps and they need outside partners with capital to help them grow their their farming operations so i think. less regulation and more openness to capital is is good for agriculture good for the family farm and allows investors to also participate with farmers and there are ways to do that that benefit both parties mutually and now you know there's a way to invest in a fund so you don't have to bet the farm on one farmer brad parker co-founder vice president asked capital.

all right let's wrap up with lou's changes especially this change because dimitri is going to phyllis and on everything he's been learning at a gora financial symposium in vancouver with lots of heavy hitters that we've been speaking to all week that he's been a fly on the wall an active fly on the wall so dimitri i'm really excited to talk to you in vancouver i want to know what in less than two minutes you can tell me that's going to change my life. if you put it that way actually i have a present for you lauren. news here. and i. look forward to being on your sure. there isn't anything that's amazing that's really

great i can't wait for delivery of that i guess that's that is something that will change my life i think i look forward to interviewing him wait a minute dimitri tell me what else is going on there anything you've learned or interesting people you've spoken to or the sentiment there. of the sentiment here is bearish the optimistic. people are bearish but of the mystic on on bearishness that makes any sense i mean they're here trying to figure these people are proactive they're people who are trying to find solutions in a world robot with manipulation so don't bank on it lation government malfeasance. tarion ism break down the rule of law and they break with the constitution all the kind of things that we've been suffering in with in the us and on the green the west canada offers a nice kind of retreat bankers are beautiful saints but it's also speaking goals words of people and the guest list is top notch i mean they mark father was

speaking and he was just you know off the charts awesome guy very funny and we had him on the show yesterday of course but you said you know on the wall i'm more buzzing about here i get to speak to a lot of people it's not like davos. of my press here but you know i remember when you were at the davos you had you had a bad bad yes i don't usually i mean all but i'm with this crowd dimitri that in under two minutes you have filled me and i now have to know that people are trying to make money off of the misfortune that they see and their bear asli optimistic forecasts will be catching up with you later throughout the week but thanks for that quick update you got it or live. and that they were our show today thank you so much for watching make sure to come back tomorrow as we have so much more in store and in the meantime you can follow me on twitter at lauren lyster give us feedback on you tube dot com slash capital account and go subscribe you can also see as an agency on the holo and from everyone here at a very nice. culture

is that so much a month maybe is going to make even a lot of people in your area and i believe there is an end game inside the assad regime with the u.s. and a regional no i think you can see for diplomacy and the warning from damascus to. download the official r.t. application so choose your language stream quality and enjoy your favorite from alzheimer's l.t.v. is not required to watch all its all you need is your mobile device watch our t.v. any time and i didn't.

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