Why farmland now? An update since the COVID-19 crisis · 2020-06-12 · Why farmland now? An update since the COVID-19 crisis 16 YTD commodity indices Commodity and foreign currency

Why farmland now? An update since the COVID-19 crisis

10 June 2020 Nuveen Real Assets

Westchester Group Investment Management, Inc.

NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE

2Why farmland now? An update since the COVID-19 crisis

Agenda


4. Westchester overview

6. Why farmland now?

15. COVID-19 update

21. Q&A

Table of contents


Westchester overview


U.S.

PERMU.S.

ROW

CHILE

PERM

BRAZIL

ROWAU

ROW

NZ

PERM

AU

PERM

EU ROW

Our investments are anchored around developed markets, with opportunistic investment in developing markets

Westchester: investing globally since 2007

24local offices

500+properties across seven countries

120+employees

170assets divested since 20073

#1largest manager of farmland globally2

$7.6BAUM1

Developed

Developing

1 As of 31 Mar 2020. 2 Pensions & Investments, 30 Sept 2019. 3 Includes partial property divestitures


Why farmland now?


Resilience to the economic cycle

Source: Macrobond, National Council of Real Estate Investment Fiduciaries (NCREIF) Farmland Index, data to 31 Dec 2019.

NCREIF Farmland Index: The NCREIF Farmland Index is a quarterly time series composite return measure of investment performance of a large pool of individual farmland properties acquired in the private market for investment purposes only.All properties in the Farmland Index have been acquired, at least in part, on behalf of tax-exempt institutional investors - the great majority being pension funds. As such, all properties are held in a fiduciary environment.

0

500

1000

1500

2000

2500

1990 1995 2000 2005 2010 2015 2019

U.S. economic recession

NCREIF Farmland TotalReturn, Indexed to 100

Farmland has a history of preserving capital


10-year government bond rates relative to U.S. farmland yield (%)

1.92

0.82

1.70

-0.19

1.37

4.35

-1

0

1

2

3

4

5

U.S. U.K. Canada Germany Australia U.S. farmland

Farmland offers attractive yields relative to government bonds

Source: U.S. Farmland National Council of Real Estate Investment Fiduciaries (NCREIF) Annual data to 31 Dec 2019, bond yields as of 31 Dec 2019



Farmland as an asset class offers lower volatility in a rising volatility world

Farmland’s relative return volatility

Source: Bloomberg, LTM data to 12 Aug 2019, National Council of Real Estate Investment Fiduciaries (NCREIF), LTM data to 31 Dec 2019


0

5

10

15

20

25

30

35

40

2007 2009 2011 2013 2015 2017 2019

U.S. Farmland

S&P 500

U.S. 10 year bonds

An

nu

aliz

ed

vo

latilit

y


National Council of Real Estate Investment Fiduciaries (NCREIF) total returns vs. S&P 500

composite

Farmland has been a reliable store of value & return throughout market cycles

Sources: National Council of Real Estate Investment Fiduciaries (NCREIF), Macrobond, data to 31 Dec 2019. It is not possible to invest in the National Council of Real Estate Investment Fiduciaries (NCREIF) index. Performance for indices does not reflect investment fees or transactions costs

NCREIF Farmland Index: The NCREIF Farmland Index is a quarterly time series composite return measure of investment performance of a large pool of individual farmland properties acquired in the private market for investment purposes only. All properties in the Farmland Index have been acquired, at least in part, on behalf of tax-exempt institutional investors - the great majority being pension funds. As such, all properties are held in a fiduciary environment.


Eight disruptive digital technologies

Sources: AcreValue, Citi Business Services, Sculpteo, Real Agriculture.com, Into Robotics.com

Artificial Intelligence (AI)

Drones

Blockchain

Augmented Reality (AR)

Remote sensors

Robots

3D printing

Virtual Reality (VR)

Internet of things


The impact of agricultural technologies

1 https://www.agry.purdue.edu/ext/corn/news/timeless/yieldtrends.html 2 USDA Economic Research Service, American Economic Association

TFP growth projections reflect expectations for productivity growth in agriculture. Productivity growth is generated by such innovations as precision agriculture technology and improved seeds and best practices for nutrient management and animal health. The GAP Report looks at the powerful combination of agricultural technology, best farm management practices, and attention to ecosystem services in supporting productivity growth, sustainability, and resilience, and creates TFP projections from that analysis.

0

20

40

60

80

100

120

1 6 11 16 21 26 31 36 41 46 51

Adoption R

ate

(%

)

Years since product was introduced

Herbicide tolerant corn (1996)

Tractors (1910)

GPS Guidance (2000)

U.S. corn yield (bushels/per acre)1

Adoption rates of technology in U.S. agriculture2

0

50

100

150

200

250

300

350

1870 1890 1910 1930 1950 1970 1990 2010 2030 2050

1866 - 1936

1937 – 1955

1956 – 2018

2019 – 2050

https://www.agry.purdue.edu/ext/corn/news/timeless/yieldtrends.html


Tracking productivity: GAP index™

Chart copyright: 2018 Global Agricultural Productivity Report (GAP Report)/Virginia Tech College of Agriculture and Life Sciences with data from USDA Economic Research Service (2018)

Source: Food Demand Index from Global Harvest Index (GHI)(2018)

Agricultural Output from TFP Growth: USDA Economic Research Service (2018.)

TFP growth projections reflect expectations for productivity growth in agriculture. Productivity growth is generated by such innovations as precision agriculture technology and improved seeds and best practices for nutrient management and animal health. The GAP Report looks at the powerful combination of agricultural technology, best farm management practices, and attention to ecosystem services in supporting productivity growth, sustainability, and resilience, and creates TFP projections from that analysis.

Data revolution required – efficiency will drive returns

80

100

120

140

160

180

200

220

2010 2015 2020 2025 2030 2035 2040 2045 2050

TF

P In

dex,

2010=

100

Low Income-actual Low-income projected

Required Rate of Annual (Total Factor Productivity) TFP Growth: 1.75%

Current Rate of Annual Global (Total Factor Productivity) TFP Growth: 1.51%

Current Rate of Annual (Total Factor Productivity) TFP Growth in

Low Income Countries: 0.96%

1.75% Required rate of TFP Growth

1.51% Current rate of TFP Global Growth

0.96% Current rate of TFP Growth - Low income countries


Relative magnitude of farmland value drivers in the U.S. Midwest

What drives row crop farmland values?

Source: USDA, Macrobond, University of Illinois, Illinois Farm Bureau, data from 2005 to 2018.

Relative magnitude of farmland value drivers in Brazil

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2007 2009 2011 2013 2015 2017

% c

on

trib

utio

n to

U.S

. fa

rmla

nd

va

lue

s

Commodity price Productivity Interest rate

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2007 2009 2011 2013 2015 2017 2019

% c

on

trib

utio

n to

Bra

zil

farm

lan

d v

alu

es

Commodity price Productivity Interest rate

Source: Agroconsult, Informa FNP, IMEA, Macrobond, data from 2005 to 2018.


COVID-19 update


YTD commodity indices

Commodity and foreign currency movements

Source: Macrobond, 8 Jun 2020

YTD currency indices

• The oil price decline has put pressure on ethanol prices and impacting both corn and sugar.

• Cotton prices have declined due to direct linkage with consumer activity.

• Wheat and soybean prices have been supported due to concerns around government stockpiling and export restrictions.

• The US dollar has risen against most currencies, seen as a safe haven in periods of uncertainty.

• The Brazilian Real has been the hardest hit with recent political turmoil resulting in the currency falling approximately 20% YTD.


Historic farmland and commodity performance

Source: Macrobond, 31 Mar 2020

NCREIF Farmland Index: The NCREIF Farmland Index is a quarterly time series composite return measure of investment performance of a large pool of individual farmland properties acquired in the private market for investment purposes only. All properties in the Farmland Index have been acquired, at least in part, on behalf of tax-exempt institutional investors - the great majority being pension funds. As such, all properties are held in a fiduciary environment.

Commodity price performance is only one component of farmland values, diversified farmland exposure means no one commodity price is likely to have a large impact on a fund’s returns.

Annual volatility (%)Performance indexed to 100 in 2000


Week Ended 31

May 2019

Week Ended

31 May 2020

2015-2019

Average

Corn 64% 93% 89%

Soybeans 36% 75% 68%

Cotton 67% 66% 66%

Rice 89% 93% 96%

Data points – Operations, sales and prices

U.S. spring planting progress: remains ahead of 5 year average

Source: USDA 31 May 2020 Crop Progress Report; USDA NASS California Almond Production 12 May 2020, ANEC 30 Apr 2020; Nielson 2 May 2020. *FMCG: Fast moving consumer goods, Treehouse

The information presented on this slide reflects data for the entire portfolio managed by Westchester in the sectors and geographic regions indicated; a particular Fund may experience slightly different outcomes

Year

Production

(bn lbs)

Growth

YoY

2016A 2.14 12.6%

2017A 2.27 6.1%

2018A 2.28 0.4%

2019A 2.55 11.8%

2020E 3.00 17.6%

10 Year Average 2.19 6.7%

2020 California almond production: estimates are for a record after good bloom conditions

Blanchable standard: Almonds by crop year (FAS CA Port)

COVID-19 impact on U.S. off premise sales: wine sales are 30% higher than 2019

0%

10%

20%

30%

40%

50%

60%

70%

03/07/20 03/21/20 04/04/20 04/18/20 05/02/20

FMCG*

Alcohol

Wine


Data points – Exports and returns

Brazil soybean exports: YTD exports 4.1mt higher than 2019

TotalFarmland

Row Crops

Permanent Crops

Total -0.10% 0.66% -1.35%

Income 0.38% 0.93% -0.51%

Appreciation -0.49% -0.27% -0.84%

March 2020 National Council of Real Estate Investment Fiduciaries (NCREIF) returns: stable in volatile macro and market conditions

0

1

2

3

4

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

So

yb

ean

Ex

po

rted

(m

t)

Week

2019 2020

• Agriculture and Livestock Confederation of Brazil (CNA) state Brazilian agricultural gross domestic product (VBP agro) will increase 8.6% in 2020 to R$ 697 billion - largest increase in 31 years.

• The value of the Brazilian crops increased 10.4% to R$ 462 billion while the value of livestock increased 5.4% to R$ 235 billion.

Record year for Brazilian agriculture

Comparison for context

IndexQ1 2020

S&P 500 -19.6%

MSCI EMU -26.8%

MSCI AC Asia (ex Japan) -18.4%

Nareit (T-Tracker) -9.0%



Supply chain and consumer trends

Resilience and redundancy: panic buying highlighted that just-in time supply chains cannot handle a change in consumer demand but changing this could be more expensive ultimately for the consumer.

Provenance: this was a trend prior to COVID-19 but a move to want to support local farmers and producers may lead to an increase in consumer demanding locally sourced where possible. This could reduce global trade of certain commodities.

Convenience: if more people work from home in the future, the trend towards convenient food solutions may diminish as people have more time to cook at home.

Shortages: the impact of shortages of certain product e.g. animal based protein in the U.S. could lead to a more permanent shift towards vegetable proteins as consumer become more familiar with them, as well as lead to higher prices.

Technology and consolidation

Technology adoption will be paramount: low commodity prices will force the primary producers to continue to adopt technology to improve their efficiency and remain profitable.

Consolidation: low commodity prices will continue to place pressure on marginal producers to leave the industry and larger farmers will want to expand their acreage to capture efficiencies with their capital investments.

Thoughts on COVID-19 potential impacts


Q&A


Thank you for attending!

Contact information:

Martin Davies

President & CEO, Westchester

[email protected]

Skye MacphersonHead of Portfolio Management

[email protected]


These materials are intended for informational and discussion purposes only and should not be considered investment advice or constitute a recommendation to purchase or sell securities. Market forecasts are subject to uncertainty and may change based on varying market conditions, political and economic developments.

It is intended that these materials be circulated only to persons to whom they may be lawfully distributed and any recipient of these materials should inform themselves about and observe any applicable legal requirements. Any entity responsible for forwarding this material to other parties takes responsibility for ensuring compliance with local laws, and in particular any applicable financial promotion rules.

This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor's objectives and circumstances and in consultation with his or her advisors.

As an asset class, agricultural investments are less developed, more illiquid, and less transparent compared to traditional asset classes. Agricultural investments will be subject to risks generally associated with the ownership of real estate-related assets, including changes in economic conditions, environmental risks, the cost of and ability to obtain insurance, and risks related to leasing of properties.

Past performance is no guarantee of future results.

Please note that this presentation should be held strictly confidential by recipients.

Nuveen, LLC delivers the expertise of Nuveen Alternatives Advisors LLC and its other independent investment affiliates.

Westchester Group Investment Management, Inc. is an affiliate of Nuveen LLC.

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©2020 Teachers Insurance and Annuity Association of America-College Retirement Equities Fund, New York, NY 10017.

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Why farmland now? An update since the COVID-19 crisis · 2020-06-12 · Why farmland now? An update since the COVID-19 crisis 16 YTD commodity indices Commodity and foreign currency