The persistence of business performance in sample soybean farms from Mato Grosso and Illinois
Direct farm land investment and ownership by non-traditional institutional, private equity, and sovereign wealth funds has increased in recent years as investors find attractive characteristics in this asset class such as favorable risk adjusted returns, an inflation hedge, and a negative correlation with many other asset classes. Investors encounter difficulties valuing these real assets where idiosyncratic knowledge and farm management performance are central to the asset’s performance. Research into the drivers of farm performance has been the subject of substantial research, and good farms can be differentiated from poor ones. Unfortunately the proper valuation for direct investment in a real operating asset requires two key elements, an understanding of the relative performance of one investment to another, and the persistence of these peer rankings over time. Research to date has omitted these two key performance components of proper valuation. Using several logistic regressions, the analysis leads to conclude that the drivers of persistence of performance are linked to managerial, structural and environmental (exogenous factors). This thesis also shows that unfortunately for the investor there are high year to year movements of farms in the distribution of returns and efficiency in two samples of soybean farms, in Illinois and in Mato Grosso, Brazil. This has significant negative implications for an investor trying to value a farm asset.
Farmland Investment, Persistence, Returns, Efficiency, Soybeans, Mato Grosso, Illinois, Cost Management
University of Illinois - Urbana-Champaign
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University of Illinois at Urbana-Champaign