Jay Girotto – Farmland Opportunity (First Meeting, EP.10)

Episode Summary

Executive Summary: Jay Gerardo of Farmland Opportunity explains how his firm invests in U.S. row-crop farmland through direct ownership, local sourcing, and operational improvements. He argues farmland offers uncorrelated cash yield, inflation protection, and long-term land appreciation, but only when bought at a discount and managed by strong operators. The conversation also covers regional theses, major risks, and why the structure is built as separately managed accounts rather than a fund or REIT.

Main Topics: Jay Gerardo’s background and origin of Farmland Opportunity (Priority: 5/5): Gerardo traces his path from Iowa farm roots to Harvard, Bain, software, and finally farmland investing after the financial crisis and his family’s long history with farmland. Why farmland is attractive as an asset class (Priority: 5/5): The discussion emphasizes farmland’s inefficiency, steady cash income, inflation hedging, and land value appreciation as core reasons institutions should consider it. Sourcing inefficiency and underwriting farmland deals (Priority: 5/5): Farmland Opportunity looks for non-economic sellers, local relationships, and discount entry points, then underwrites based on soil, drainage, productivity, and operator quality. Operational value creation and operator selection (Priority: 4/5): The firm uses progressive farmer-operators, precision agriculture, and active farm improvements like drainage and reclamation to improve yields and economics. Regional strategy and proprietary deal flow (Priority: 4/5): The firm concentrates on core Midwest farmland plus two special regions: northern Minnesota and the Palouse, each driven by specific long-term theses and local networks. Risks, regulations, and market structure (Priority: 4/5): Gerardo highlights deflation, inflation without rising rates, China dependence, WOTUS regulation, and trade-war uncertainty as key macro and policy risks. Vehicle structure, competition, and exit strategy (Priority: 3/5): He explains why the business uses separately managed accounts, avoids carry on sales, and prefers local/private-market exits over a REIT-style structure.

Key Arguments: Farmland is inefficiently owned and transacted, especially in the Midwest, creating opportunities for patient buyers with local networks. Buying farmland at a discount to market is essential; simply owning farmland does not guarantee attractive returns. Strong operator selection matters as much as land quality; the firm seeks operators with yields about 20% above county averages. Farmland offers two return streams: annual cash yield and long-term land appreciation, the latter helped by inflation and productivity growth. The firm’s regional focus is deliberate: core Midwest familiarity, northern Minnesota climate-driven improvement, and Palouse relative-value arbitrage. Separate accounts are preferred because farmland is illiquid and long-duration, and investors should control timing of asset sales. The biggest risks are macro shocks such as deflation, a high-inflation/low-rate scenario, or a major deterioration in China trade relations. The industry’s main competition is still farmers, not institutions, because farmers buy most land and institutional participation remains small relative to the $2T market.

Data Points: Firm assets: $400 million - Size of Farmland Opportunity as described in the introduction Acreage under management: 87,000 acres - Gerardo says the firm has 66 operators across this acreage Number of operators: 66 operators - Operator network managing the firm’s farmland Gross cash yield: Around 5% - Gerardo says gross cash yields are about 5% before fees and taxes Net cash yield: Around 4% - His historical underwriting/return target net of fees and property taxes USDA average cropland yield: About 3% - Average cropland rental rate divided by average cropland value Management fee impact: About 98 bps on average - Gerardo says the firm takes 20% of gross revenue, averaging this fee burden Property tax burden: 5 to 25 bps - Varies by state and is one of the main investor costs Long-term land appreciation: About 6% historically - Gerardo attributes roughly half to inflation and half to crop-production growth Model assumption for appreciation: 4% - Farmland Opportunity models land value appreciation conservatively County yield target: 20% above county average - Desired operator performance versus county T-yield benchmarks Market discount opportunity: 10% to 20% - Potential price discount when sellers avoid public auctions or want privacy/speed Annual deployment pace: Around $40 million per year - Typical capital deployment rate for the strategy Potential scaled deployment: $70 million to $80 million per year - Gerardo says more staffing could increase pipeline capacity U.S. farmland value decline in crisis: About 4% - USDA farmland values fell modestly during the financial crisis while income streams held up Farm income decline since 2013 peak: About 50% - Commodity and farm incomes have fallen since the 2013 peak U.S. corn exports: About 10% exported - Used to explain why corn is more domestically driven than soybeans U.S. soybean exports: Almost 50% exported - Used to illustrate soybean exposure to trade war and China demand Farmland market size: About $2 trillion - Estimate of total U.S. farmland value Institutional competition benchmark: Two public REITs own less than $1 billion each - Shows how small professional farmland capital is relative to the market Largest institutional investor cited: TIAA-CREF at about $5-$6 billion - Illustrates that institutions remain a tiny share of farmland ownership

Pivotal Quotes: "there may be no one I've come across who does that as clearly and as well as WCM" — Ted Seides: Sponsor testimonial opening the episode, praising WCM's differentiated investing approach "Farmland is an extremely inefficient market" — Jay Gerardo: Gerardo explains the starting point for the strategy and why local sourcing matters "our view is that this is a illiquid, long-duration asset in terms of how long you want to hold it" — Jay Gerardo: He explains why the firm uses separately managed accounts rather than a fund or REIT

Implications: For investors, farmland can be a durable diversifier if sourced locally, bought cheaply, and operated well. The strategy favors patience, expertise, and disciplined underwriting over scale chasing. Regional climate shifts, trade policy, and liquidity structure will shape returns.