Visit Date: Friday 25th March 2016
Location: Fresno, California
Today we were hosted by Westchester Group, a leading global asset management company. For more than 25 years, Westchester have acquired, managed and marketed agricultural real estate around the world for the benefit of their investors and the farmers with whom they work. Westchester have strong roots in Australia and the US. The company’s goal is to achieve the ownership and investment objectives of their clients, which range from pension funds, institutional, corporate and individual investors, as well as financial growth for their shareholders.
With over $US 8 billion of assets and commitments under management, Westchester’s portfolio includes more than 350 high quality, farmland properties in seven countries. The group was founded in 1986, and over that time have played a role in the acquisition, marketing and management of over $US 10 billion of assets.
Hosted by Westchester in their Fresno office, we got a great understanding of how their business operates with particular reference to the California operation. With a team of 6 people, they manage over 25,000 acres, and are looking at expansion opportunities.
Farmland enjoys a unique position as an investment. It is an asset class that produces competitive returns for its investors, with less volatility than common stocks and corporate bonds. Over the last 20 years, Westchester has seen farmland, which includes both annual and permanent crops deliver an annual total return of over 11%. As a rule, Westchester don’t invest in livestock holdings.
Once land is purchased, Westchester look to either manage the land in-house or lease the land out on an annual basis, in which they strive to maintain a good working relationship with the lessee. Typically for row crops/ annual cropping, Westchester would be looking for a return on investment in the region of 5%.
Westchester kindly took our Nuffield group around two of their recent investments, an almond plantation, and a walnut plantation, both located on the outskirts of Fresno. Some of the key points are highlighted below;
- Non planted, bare land with irrigation is actively being sought by large agri-investment companies paying up to $US 30,000/acre with an agenda to plant, grow and harvest nuts.
- Land planted, and with trees reaching their third season, land could be in the region of $US 45,000/acre.
- Almond and walnut trees have a typical life span of approximately 20 years and from planting it will normally take three years before a crop can be harvested. Almond trees normally reach their full harvest potential at year 6.
- Cost of establishment which includes planting over the three year period is $US 10,000 per acre, of which approximately $6,000 per acre is typically spent in year 1.
- All growing sites contain different varieties of trees for cross pollination.
- Improvements in water technologies have significantly reduced water consumption levels over the last three decades by 33% per pound of almonds produced.
- Micro-irrigation systems decrease water runoff by applying water only where the tree requires it, and allows for precise timing and rate of irrigation.
- 85% of growers use advanced technologies to schedule their irrigation based on tree needs, and soil and weather conditions to maximise yield and quality of the almond while minimising negative environmental impacts.
- 63% of growers use soil maps to understand the soil characteristics in their orchards in order to determine the design of the irrigation systems to enhance water infiltration and distribution.
Producing nuts is big business and almonds are one of the state’s most valuable commodities. California produces 83% of the globe’s almonds, harvesting around 800,000 acres across a 400 mile stretch within the Central Valley, near Fresno. Fuelling the boom is the robust foreign demand, particularly from emerging markets like China and India.
About 70% of California’s almonds are sold overseas, making it the states number 1 agricultural export, contributing $US 4.5 billion in 2014, an 8.8 increase on the year before. To provide some perspective dairy products are ranked second at US$ 2.4 billion and only experienced a 0.7% increase on the year before. Walnuts are the state’s third largest value export, contributing $US 1.5 billion.
This was our first on-farm visit in California, and it certainly highlighted the importance the state placed on nut production, and the reasoning why large agri-investment funds are placing so much emphasis and time in acquiring and managing land for producing this high value crop, in which the market keeps growing.