Brandon Zick - In Row Crops You’re Generating A Lot Of Current Income | #161

Episode Summary

Executive Summary: Meb Faber and Brandon Zick discuss farmland as an institutional asset class, emphasizing row-crop Midwest land as a source of current income, inflation protection, and diversification. Zick explains Cirrus’ value-driven, relationship-based strategy: buying undervalued land, improving it, partnering with top farmers, and capturing optionality from irrigation, specialty crops, solar, minerals, and development potential.

Main Topics: Farmland as an Attractive Real Asset (Priority: 5/5): The conversation frames farmland as a tangible, income-generating asset with low correlation to public markets and a strong inflation hedge. Row crops in the Midwest are presented as the core opportunity. Cirrus’ Investment Strategy and Sourcing Advantage (Priority: 5/5): Zick explains that the firm wins by building deep local farmer relationships, sourcing off-market transactions, and acquiring land at attractive cap rates through a bottom-up, value-oriented approach. Crop Types, Geography, and Why the Midwest Matters (Priority: 5/5): The interview contrasts row crops with permanent crops and explains why Cirrus favors the Midwest—better soil, rainfall, and lower risk compared with more expensive or water-constrained regions. Farmland Cycles, Leverage, and Valuation (Priority: 4/5): They review the 1980s farm bust, the impact of leverage, and how today’s land market remains more resilient because ownership is often debt-free and demand is local and fragmented. Operational Value-Add and Technology (Priority: 4/5): Cirrus improves assets through irrigation, drainage, better leases, and productivity-enhancing technology such as GPS, drones, and remote pivot control, which increase yield and land value. Optionality: Solar, Minerals, Development, and Private Ag Bets (Priority: 4/5): Land ownership creates optional upside beyond crops, including solar options, oil and gas royalties, timber, hunting, and industrial or residential development potential. Liquidity, Structure, and Institutional Adoption (Priority: 3/5): Zick describes the evergreen fund structure, annual liquidity, and why farmland remains under-owned by institutions despite its size and appeal.

Key Arguments: Farmland is attractive because it combines current income, inflation protection, and diversification with relatively low correlation to stocks and bonds. Cirrus focuses on U.S. row crops, especially in the Midwest, because the region offers the best balance of soil quality, rainfall, and competitive farming talent. The market is inefficient and fragmented, so relationship-based sourcing and local tenant knowledge are key competitive advantages. Permanent crops may appear to offer higher returns, but they carry more operational and water risk, require higher capital intensity, and are less forgiving than row crops. The firm seeks 5%+ current income and views 8% to 10% net returns through a cycle as a realistic target, with upside from land appreciation and active management. Long-term leases, irrigation, drainage, and soil improvements can materially improve farm economics and tenant behavior. Farmland’s downside is buffered because the asset is dirt, not a tree or vine; mistakes are less permanently damaging than in permanent crops. Volatility in commodity prices creates opportunities for disciplined buyers with capital and patience, while overleveraged farmers and hot-money buyers are disadvantaged. Tech improves land productivity and operational scalability, but also tends to strengthen the landowner’s position by increasing productivity and land value. The best institutional strategy in farmland is not to maximize AUM at any price, but to preserve value discipline and deploy capital only when attractive opportunities exist.

Data Points: Institutions’ share of farmland market: 2% to 3% - Zick says institutional investors represent only a tiny portion of U.S. farmland ownership. Owner-operator farmers’ share: about 40% - He describes typical farming owners as a minority of total land ownership. Current income target: 5% to 6% - Cirrus targets current income from row-crop farmland. Farmland turnover rate: about 1% annually - Used to explain why sourcing is difficult but meaningful in a $3 trillion market. U.S. farmland market size: $3 trillion - Zick notes the overall size of the farmland market in the U.S. Annual acquisitions last year: $90 million - Cirrus deployed this amount into new acquisitions while reviewing roughly $1 billion in transactions. Deal flow reviewed: about $1 billion - Amount of transactions Cirrus evaluated to source $90 million in purchases. Portfolio size: 130,000 acres - Approximate land owned by Cirrus at the time of the interview. Tenants: over 100 - Cirrus works with more than 100 farm tenants across its acreage. Specialty crops share of portfolio: about 20% - Includes vegetables and higher-revenue irrigated crops in the Eastern Corn Belt. Redemption example: $45 million - Annual redemption Cirrus handled when the fund was around $500 million. Fund size mentioned: about $800 million to $1 billion - The interview references the fund nearing a billion in assets and later calls it an $800 million fund. Largest investor size: $100 million - Used to explain why liquidity terms need to account for large investors. Liquidity line of credit: $50 million - Cirrus uses a secured credit line to pre-buy properties before new equity arrives. Portfolio revenue from solar option agreements: $1.2 million - Expected annual revenue from solar option payments on about 20% of farms. Total portfolio revenue: $30 million - Solar option revenue is described as a meaningful share of total portfolio revenue. Renewable option share: about 20% of farms - Percentage of farms under solar option agreements. Planted corn acreage estimate: 93 million acres - A reference point for expected corn acreage in a wet spring, later revised lower by 5-10 million acres. Potential corn acreage shortfall: 5 to 10 million fewer acres - Zick suggests wet weather will materially reduce planted corn acreage. Iowa farmland debt-free ownership: 82% to 83% - He cites a statistic showing how much land is owned debt-free in Iowa. Illinois farmland debt-free ownership: above 80% - Cited as another example of low leverage in farmland ownership. Historical land appreciation: 6% to 6.5% annually - Chicago Fed data for the Corn Belt over the last 60 years. Expected cycle return: 8% to 10% net - Cirrus’ expectation for farmland returns over a full cycle. Seed corn/specialty crop concentration: 10% of farms on crop shares - The firm notes a smaller portion of its farms use crop-share structures, mainly specialty crops. Minimum investment: $250,000 - Minimum to invest in the private fund.

Pivotal Quotes: "There is no cheap beta in this market." — Brandon Zick: Explaining why farmland returns require active sourcing, local relationships, and disciplined valuation. "If we have to find a farmer and teach him how to farm, we have the wrong operator." — Brandon Zick: On the importance of partnering with top-tier local farm tenants rather than trying to operate farms directly. "We don't just manage farms, we manage farms that we own, and we're investors in the fund as well." — Brandon Zick: Describing alignment with tenants and investors through ownership and hands-on asset management.

Implications: Farmland remains a small, inefficient niche with room for institutional growth. Investors willing to accept illiquidity and value discipline may gain diversification, inflation protection, and upside from land improvement, tech adoption, and post-cycle commodity recovery.