Ryan Nauman hosts Zephyr’s Adjusted for Risk Podcast from Lake Tahoe and interviews David Chan, Head of Investor Relations at Homestead Capital, an institutional manager focused on U.S. farmland and agricultural investments. Chan explains Homestead’s origins, its farmland equity approach and newer credit strategy lending to farmers, and key themes shaping farmland: income durability, inflation linkage, land scarcity, active management potential, and a flight to quality driven by water security—highlighting California’s Sustainable Groundwater Management Act and resulting value bifurcation. They break down farmland returns into income (lease or operating) and appreciation, distinguish permanent crops (e.g., almonds, pistachios, citrus, wine grapes) from row crops (e.g., corn, wheat, soy), and discuss ways to invest via direct ownership/funds, public vehicles, and credit. Chan addresses misconceptions, benchmarks (NCREIF Farmland Index), liquidity and complexity, current bear markets in permanent crops tied to pandemic-era oversupply, and geopolitical impacts such as fertilizer pricing and potential E15 ethanol policy boosting corn demand.

Learn more about Zephyr here.

Learn more about Homestead Capital here.

00:00 Welcome and Setup

01:13 Meet Homestead Capital

02:55 Personal Farming Roots

04:39 Farmland Themes Today

10:40 How Farmland Returns Work

12:43 Permanent vs Row Crops

15:31 Ways to Invest in Farmland

17:26 Finding Deals Now

19:40 Why Permanent Crops Slump

23:58 Common Farmland Myths

27:31 Risk and Benchmarks

30:32 Liquidity and Complexity

32:51 Geopolitics and Fertilizer

37:06 Wrap Up and Contact Info

Connect with Ryan Nauman:

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Let's go.

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Ryan Nauman Market Strategist Zephyr:

Hello everyone and welcome to

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zephyr's adjusted for Risk Podcast

from the shores of Lake Tahoe.

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I'm Ryan Amman, the market

strategist here at Zephyr.

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For years, investing in real estate has

been a very popular alternative investment

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strategy as it provides portfolio

diversification in attractive income.

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However, the real estate asset class is

vast with many different sub-sectors.

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Today we're going to take a deep

dive into investing in farmland,

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and I have on the perfect guest to

discuss all things farmland with us.

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first, today's episode is sponsored

by the award-winning Zephyr, which

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helps investment professionals

make more informed investment

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decisions on behalf of their clients.

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Alright, enough from me.

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I've already talked enough.

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Let's go ahead and bring

on the star of this show.

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very honored and excited

to welcome David Chan.

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David is the head of investor

relations at Homestead Capital.

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David.

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Thank you so much for coming on.

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I'm really excited

about this conversation.

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It's a conversation that we'll

talk a lot about and and it goes

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back to my family roots also.

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So can you please tell us a little bit

more about yourself and Homestead Capital?

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David Chan Head of Investor Relations Homestead Capital:

Absolutely.

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And thanks so much for having me, Ryan.

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Looking forward to this discussion.

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I lead investor relations

at Homestead Capital.

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We focus on US farmland and

agricultural investments.

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And we are an institutional investment

manager, and so we typically are

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working with pension plans, endowments,

foundations, and helping them

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achieve their investment objectives

with investments in agriculture.

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I, I think.

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What would be helpful to share

maybe is just a little bit about

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homestead's background and history.

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The firm was founded in 2012 by two

partners, Gabe Santos and Dan Little both

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of whom have a connection to agriculture.

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Gabe's grandparents were migrant

farmers in California, and Dan

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grew up in Ohio on a family farm

in I think, near Canton, Ohio.

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And both have a very, deep

history and roots in the space.

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Thought that it should be an asset class

that more investors have access to.

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And so that was really

the genesis for Homestead.

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Since then we've been investing in US

farmland primarily on the equity side so

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purchasing farmland and basically taking a

real estate approach on those investments.

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More recently we've also developed

a credit strategy as well

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where we're lending to farmers

also in the United States.

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So excited to dive into

both of those strategies.

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Ryan: David.

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That's fantastic.

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I love it.

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think there's a lot of people out there.

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More people than we think that have a.

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Background or family heritage and farming.

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My family was, is big

farmers in South Dakota.

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That's where my parents are from.

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Every summer I would go to the

farm, hang out with cousins.

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I wasn't thinking about investing

at that time and farmland.

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Most of the time I was thinking about,

where can we grab a couple of cocktails,

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couple beers run off to a, or some pasture

or something, crops in the corn and

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drink a bunch of cocktails and a bunch

of beers and find your way out home.

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But that was usually my experience

with farmland and farms.

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I love that.

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There's all that history of farms and

that's where Homesick Capital came from.

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David Chan: It's true.

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So many of us have the

connection to this space.

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I grew up in the Hudson Valley and

my first job was on an orchard.

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You were, you could pick apples.

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And it was seasonal and it's hard

work and it teaches you a lot.

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But ironically, I never, I didn't

expect to come back into ag.

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I wanted to go to the big city

like so many others in my class.

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And a as luck would have it.

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My path brought me back here.

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And it, it is remarkable and funny.

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How many of us do have a

connection to the space?

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Ryan: Yeah, and you're in New

York, so you wouldn't think of New

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York and farmland and agriculture.

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So it is all connected and I love it.

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Most people think it's just a

fly over states, but it's not.

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And I think it's fantastic, but as you

guys were working on farms I like to think

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I was working on farms at my family farm.

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I wasn't, I was just screwing around and.

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Thankfully not getting

into too much trouble.

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David, there is a lot of themes

within real estate right now.

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One of the big ones is, data centers.

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Everyone's talking about data

centers, rightfully one of the bigger

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themes are what are some of the

primary themes within real estate

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that you're currently following.

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David Chan: Yeah that's a great question.

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And we certainly see the data center

theme come up in our space as well.

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I think actually just recently in the

news, there is a family farm in Kentucky.

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That was offered, I wanna say 26 million

for their family farm by a technology

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company presumably as a prospect

for for data center infrastructure.

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And the family declined the

offer because they feel like.

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Their farm is really important

to the community and to our

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national food supply and they feel

a very strong connection there.

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And I had a chance to

listen to the interview.

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It was amazing.

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But that is how so many

of our farmers operate.

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They truly do believe, that this is.

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A very important industry and asset class

for society, for our national security.

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And they see themselves

as stewards of that.

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And as we continue to see farmland.

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Decreasing because of encroachment,

whether that be from more traditional

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real estate, multifamily, industrial.

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Now we're seeing a lot more in, in

sort of the infrastructure flavor, data

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centers probably leading the charge there.

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And even in renewables there is

this strong contingency of folks

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who want to make sure that we

continue to be a leader globally in

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agriculture and preserve us farmland.

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But to come back to your

question, I think the themes that.

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Stand out in farmland today are the

ones that have always underpinned

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the investment thesis for farmland

and for real estate more broadly.

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But it's income, durability, and

a strong linkage to inflation.

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Farmland is one of the strongest

hedges that we've seen historically

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against higher periods of inflation

and has also performed really

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well in stagflationary conditions.

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And so if you look back into

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environment for many industries,

public equities bonds, corporate debt.

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Farmland was one asset class that was

able to do well during that period.

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And for us, I think it, it's as

simple as everyone needs to eat.

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So no matter what, no matter what the

macro picture may be, we're all humans.

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We have certain basic needs,

and food and nutrition are.

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Among the base of that pyramid.

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And we certainly see it as

an all weather strategy.

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We do see supply constraints as well.

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I just touched on the fact that, US

farmland has been decreasing meaningfully

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over the past 20 years or so.

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We've lost twice the size of

the state of Massachusetts in

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terms of farmland in the us.

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So that's certainly, a trend

that we continue to see.

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And, while it is, concerning from

some aspects, it does underpin

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stronger fundamentals and does

increase the value of farmland that

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continues to be operationalized today.

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And then I would say maybe, the last two

that come to mind would be I think a lot

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of investors maybe think of farmland as

a very passive investment play where.

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Land doesn't look like

it changes all that much.

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And how much differentiation is

there between one almond orchard

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and one across the street?

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And my response to that would be

that there's actually a lot of

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differentiation and there's a lot

of room for Alpha in our space.

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And so Homestead's a very active manager.

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We take a very active approach and so

we certainly see that outcomes can be

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defined by how closely monitored and how

active you are in, creating an operational

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plan specific and tailored to that

property based on that property, soil

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characteristics, water characteristics

and then obviously the commodity market

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fundamentals that may be at play.

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And the last one I would mention

is just a flight to quality.

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We've seen in the past decade or so.

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Yeah, I'll pick on

California for a moment.

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California has it, it's easy.

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You're in Lake Tahoe.

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California has implemented a new

riparian right law called the Sustainable

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Groundwater Management Act or Sigma.

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And that basically is trying to

price water in the state, or at least

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regulate usage of water in the state.

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Between residential actors,

commercial actors and the like.

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And of course agriculture

is a component of that.

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And so one thing that we have seen

in California farmland is essentially

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a bifurcation in value where.

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Properties that have more secure water

rights, groundwater rights, surface

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water rights, and are in more I would

say stronger water districts in the state

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where they may be sitting on top of a

positively recharging aquifer as opposed

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to a negatively recharging aquifer.

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Those values are holding and

appreciating at even above average.

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Rates compared to historical

appreciation rates, whereas properties

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that are in districts that have

weaker water regulations or are

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not, don't have the same access

to groundwater and surface water.

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Those properties are appreciating well

under historical appreciation rates, and

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so we're certainly seeing a flight to

quality and that bifurcation occurring.

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Ryan: Yeah, David, that's

fantastic and lot to unpack there.

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Let's start with California.

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You're exactly right, bean.

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California, lake Tahoe, the fight over

water rights here between Southern

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California and the farmers and North.

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It is crazy.

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It, because there isn't much water, right?

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So a lot of politics going on

there, so that makes sense.

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The other one, that family

in Kentucky, good for them.

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That family of farmers in Kentucky

to say, no, they're $26 million.

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I'm not sure there's many people that

would do that, but they are, I love

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that they're, the passion they have for

farming and how much they understand

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because, like you said, like corn.

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Corn is in almost everything.

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We talk with ethanol

and what corn produces.

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I box of Wheaties, right?

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Corn is in a lot of different things.

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I don't think people really

realize how important it's,

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David Chan: That's why farmland is

such a good inflation hedge because

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these commodities are integrated

all across the economy in places in

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ways that you would never think of.

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Ryan: It's fantastic.

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So let's talk a little bit more

about investing in farmland.

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You talked about, you touched

on briefly about the impact it

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has on investment portfolios.

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It's a hedge to inflation correlation.

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It helps increased diversification

of a portfolio, but also what is the

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composition of farmland investing?

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For me, I just think of.

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Basically investing in a field.

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But that's somebody that's,

looking at the outside.

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Can you tell us a little bit more

about the composition of farmland

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investing versus, other investing?

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Sure.

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David Chan: Absolutely.

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So I think it's very

analogous to real estate.

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And we're talking

farmland equity right now.

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So investing in farmland equity

very analogous to real estate.

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You're basically, owning productive land.

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And there may be improvements on it.

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And you are going to generate two

different return streams, just

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a real estate investor would.

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An income return, which can either

be derived from rental income if you

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lease the property to a tenant farmer.

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Or from operating income, if you directly

farm the property and you're taking

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exposure on commodity yields, commodity

prices so either way it's an income

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return, but it can be either sourced from

rental income or from operating income.

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The other return stream

would be appreciation.

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So again, similar to real estate,

you have an underlying asset.

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Fundamental value has historically

been extremely stable.

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And that's driven by land scarcity

productivity improvements, and

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also just the long term demand for

food, a growing global population

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arising middle class globally.

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That's a asking for

essentially higher cal.

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Daily intake by virtue of having

preferences for meat and other higher

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protein sources, which require a lot more

inputs early on in, in the food system.

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And that appreciation is obviously

gonna be in realized until a sale.

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But just like in real estate, if you

sell the underlying holding in 10 or 15

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years or whatever it may be, you would

have a, a long-term realized gain there.

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When we go a little bit

deeper into farmland, there's

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essentially two different flavors.

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There's permanent crops

and there are row crops.

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So permanent crops would be

tree nuts tree fruit citrus.

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And so a lot of, probably a

lot of favorite commodities

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fall into this category.

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Almonds, pistachios, apples, wine,

grapes citrus all of those would

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fall under these permanent crops.

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And essentially what we

mean when we say permanent.

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Is there are long live assets on

the property that you are investing

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in and that you're underwriting.

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And so you may underwrite a.

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Say an almond tree to

produce for 25 years.

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So 25 different cash flows that you're

valuing and you're going to estimate based

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on expected yields for that property.

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And obviously, your best

guess for almond pricing.

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No one knows what almond prices are gonna

be for the next 25 years, but obviously

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we use history and and just try to make a.

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Essentially a prudent estimate

when doing that underwriting.

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One interesting fact about permanent

crops are that the long-lived

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assets, the trees, the vines,

are actually depreciable assets.

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And so obviously you can't

depreciate land, but you are able to

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depreciate any of those improvements.

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Trees, vines, and various capitalized

expenses that go into developing an

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orchard which can make permanent crops

potentially interesting for folks

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that may have different tax efficiency

considerations and may value depreciation.

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On the other end of the

spectrum would be row crops.

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And so row crops are going

to be your annual crops.

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You mentioned Wisconsin before, I'm sure

there, there's certainly some permanent

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crop acreage somewhere in Wisconsin,

but by and large, Wisconsin, I think

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I'd venture to say is probably 95.

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Plus percent row crops.

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That's going to be your corn, your wheat,

your barley peas, cotton any of those

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commodities that grow in rows on the

ground and are planted every single year.

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So there's no long live asset

there that you're underwriting.

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Your basically, making a decision

during the planting season as to

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what you're going to plant and taking

it one year at a time effectively.

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So that, that's essentially the

composition of farmland today.

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Ryan: I love it.

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That's fantastic.

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And I think a lot of people,

might just think, yeah, like

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corn and wheat, not think about

orchards or vineyards and so on.

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A lot of different parts of investing

in farmland that can make up probably

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a very diversified portfolio if you

invest in a basket of farmland, whether

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it's, like I said, in the South or

Florida, you're getting, citrus and

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out here in California, some vineyards

in, in the Midwest, some corn.

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So you can really diversify

your holdings there.

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And talked, you talked a little bit

about on the equity side, right?

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Your invest, it's an equity

investment and some of these

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ways of investing in farmland.

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What are the different ways to

invest in farmland or agriculture?

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David Chan: There, there are many.

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I think for equity investments

direct ownership would include

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institutional funds or commingled funds.

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Like what we work what

we work on at Homestead.

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It could be direct ownership through sole

asset if someone's familiar with the space

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and can operate, a property on their own.

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But that would be more of the

direct flavor on the equity side.

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On the public side, there are certainly

some public equities, ETFs, there's

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obviously agribusiness companies.

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There's even some farmland, REITs, some

publicly traded REITs that are available.

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And, I would say that's again,

also on the equity side.

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And then there's an entirely other

world which would be more credit.

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And that's, lending to the space.

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So lending to farmers lending to

folks who work in agriculture who

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either need access to a term loan or

an operating loan, a working capital

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facility any of those types of credits.

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On the equity side obviously we're

biased, historically we see that.

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When we look at farmland's performance

as a diversifier offering uncorrelated

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returns we see the direct ownership

model as best stimulating that, certainly

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see a little bit more market beta.

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Influence the REITs and the ETFs and

the agribusiness companies that are

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publicly traded, which should be of

no surprise if, if you're listed on

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an exchange, obviously you're gonna

going to be more susceptible to beta.

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That would be the only

caveat that I'd share there.

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Okay.

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Ryan: good.

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We're gonna talk about some maybe of the

pain points to investing in farmland.

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I think, might go along with a lot

of different private markets too,

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but we will touch on that shortly.

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Where do you currently find

opportunities within farmland?

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You talked about like the decrease

in farmland opportunity or just

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the amount of farmland out there.

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It's decreasing, and I got a follow

up question on that, but where do

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you find opportunities right now?

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David Chan: Us.

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I, I think we certainly take

a very bottoms up approach

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when it comes to sourcing.

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It starts with the land.

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It starts with, soil quality

water quality, water access.

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We would then, look at.

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Is the pool of operating

partners or tenants in that area.

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And so you, it's rare, but you could

have a really strong asset in terms

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of water quality, soil quality, and

if that's an isolated siloed asset

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in an area where, maybe there are

operating partners and tenants and we

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just haven't gotten to know them yet.

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That presents risk obviously, because

you don't want to find yourself with

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an asset, with no one to manage it.

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And so we certainly think about,

where are we comfortable in terms of

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tenant pools and operator networks

and where are we confident that, if

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the proverbial bus hit one of our key

partners that we would have, a number

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of other very capable and high quality.

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Substitutes to, to plug in place.

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I, I would say all of

that plays a big role.

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In terms of where we are

today in the farmland market.

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Most commodities right now,

certainly in the permanent side are.

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In bull, or I'm sorry, in

bear markets right now.

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And we don't see many bull

markets currently in ag.

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I can't really think of any at the moment.

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And these are all commodity markets, so

they're cyclical, which means what goes

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up, must come down, what goes, and then we

see low cr, low prices, cure low prices.

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And so very cyclical we think now

is a very interesting entry point

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just given, the bear markets that

have played out in the different

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permanent crops that we invest in.

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And so there's a lot of opportunities

in tree nuts in, in citrus.

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Really across a lot of the

commodities that we look at.

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It comes down really more to

asset selection soil, water, all

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of those key characteristics.

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I think a real estate investor might say

you can't change where the land is, or you

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can't change where on the block you are.

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Some of those.

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Adages for us our equivalent

would be soil and water.

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And so it starts there.

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Ryan: Yeah.

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Interest.

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So why do you think we're in a bear

market in so many different parts of farm?

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Especially in the, like you

said in the permanent farmland?

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What's driving it?

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What's it?

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Is it just.

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Climate, is it interest rates

is, or supply and demand?

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David Chan: A couple moments ago when

we talked about permanent versus row

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crops we talked about in permanent,

you're underwriting, decades potentially

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of cash flow with long-lived assets.

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Whereas in row crops you plant every

year you basically have a reset.

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You can respond to the market around you.

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This creates a pretty meaningful

bull whipp effect where if you

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are a permanent crop grower.

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It's gonna take you five or six

years to grow your almond tree

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to a point where it can produce a

commercial yield no matter what.

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We can't speed up biology.

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We can't make time go faster.

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And so that, that limitation is

always going to be in place, whereas

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a row crop operator can respond

to the environment around them.

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So let's pick on 2025 for a moment.

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2025.

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We had a lot of tariff volatility.

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And that certainly shook ag

and I think created a lot of

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uncertainty around row crops.

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Corn soy was probably number

one on the list just given.

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China typically buys 20 to 25% of US soy.

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And so there was a moment last year

where I think a lot of growers.

380

I weren't sure if China was

going to be there as a buyer.

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And if you can imagine 20 to 25%

of your market leaving overnight,

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that's a pretty unsettling thought.

383

And so we saw last year, I think a four or

5% transition for growers who previously

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had planted soil or corn, sorry, in 2024.

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Would've planted corn.

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And in 2025 they opted to plant soy.

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Now, this year, different set of macro

uncertainty, but volatility nonetheless.

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Now we're dealing with the

conflict in Iran and obviously the

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reverberation and energy prices

and a lot of other components.

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And so there's a lot more

uncertainty now for the corn market.

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Because corn requires different

inputs, different fertilizers a

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number of these fertilizers are

sourced from the Persian Gulf.

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And so right now estimates from the

USDA are showing that soy acreage is

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going to be up 4% and corn down 4%.

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And so we're seeing that switch

come back entirely, more or less.

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Permanent crop growers can't respond

that quickly because of biology.

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They can't, they can't respond to their

to different headwinds or challenges.

398

And I think.

399

What has caused a big part of the current

bear market that we're in across a lot of

400

permanent crops was actually the pandemic.

401

And so during the pandemic, a number

of ports were closed for trading

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partners that we typically export to.

403

And many of these commodities are

actually I wouldn't say that they're

404

non-perishable, but they can be stored,

they can, you can build inventories.

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And so stockpiles grew.

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And all the while we continued to

have banner years with weather where

407

we were having bumper crop on top of

bumper crop, on top of bumper crop.

408

And so these stockpiles and inventories

grew as we were very limited in

409

getting exports and trade out.

410

And it created a little bit

of a, of a compounding issue.

411

And so we've had oversupply in a

number of these markets as a result.

412

And we're finally, now, what,

three or four years post pandemic.

413

Finally starting to get both the

stockpiles down and seeing the market

414

forces essentially take hold where

you're seeing land either become fallowed

415

or almond orchards decrease in size.

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Trees may be ripped out.

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Basically, the market, the supply market

shrinking as a response to what that.

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Signal or challenge was, but it takes

almost five years for that to happen here.

419

Whereas in row crops it happens, I

wouldn't say overnight, but it feels

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overnight compared to permanent.

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Ryan: Yeah, exactly.

422

And we'll talk about geopolitics and

the political risk there shortly,

423

but it's interesting, it's not

just within the US borders, right?

424

We export a lot of the crops, a lot

of geopolitical risk there involved

425

with with investing in farmland.

426

So what are some misconceptions

of investing in farmland?

427

sure There's, a few you come across.

428

David Chan: There's many.

429

I would say, one we touched on already

was that it's just passive land ownership.

430

Maybe for some, but.

431

For us at Homestead, it is very much an

active strategy and an active approach.

432

And I think for a lot of growers,

it's a very active approach.

433

Decisions that you make in the moment

can, can bear out meaningfully in

434

terms of return, in terms of financial

health of that particular farm.

435

And I certainly don't, I think it's far

too complex of an industry especially

436

in today's environment, for anyone to

be able to label it as passive, I think

437

another another two that come to mind.

438

The second one would be that

it's an either a niche or

439

maybe a nascent asset class.

440

That, or esoteric is another

word that comes up that I,

441

always gets a reaction out of me.

442

Because this is.

443

In my view, the oldest asset class

we have, if you go back to, where

444

derivative contracts started, it

was Dutch tulips centuries ago.

445

And ag has been here as long as we have.

446

There's nothing nascent

or esoteric about it.

447

And so I, I would say

that would be a second.

448

And then the last one, I haven't

heard much of this recently, but

449

have certainly seen in the past a

lot of, a lot of folks journalists

450

or just, just writers mentioning that

us farming is has industrialized too

451

much and industrial farming and the

consequences of what that could bring.

452

And I just don't think it's the right

characterization for us farming.

453

If you wanna.

454

If you were to say that industrial

farming is linked to institutional

455

farming, on the institutional side,

we're maybe two or 3% of the market.

456

So 97% of US farms are privately owned

by families or small family companies.

457

So I certainly wouldn't say that's

the right way to, to look at it.

458

If you were looking at it from

maybe the average farm size.

459

Our farms are generally

under a thousand acres.

460

In the US it's rare to

find multi-thousand.

461

Acre contiguous plots of land here.

462

And if you look at our history and our

firm's namesake, president Lincoln,

463

signed the Homestead Act in 1862.

464

And that, of course, granted

Western settlers, I think it was 160

465

acres that vested over five years.

466

Basically incentivizing them to

make improvements to the land and

467

start agricultural production.

468

In order to improve our food supply

and also start to, to disperse

469

more of our population out west.

470

So small farming is really part of

the fabric of our history's, DNA.

471

And so that would be the last one where,

if you wanted to truly see industrial

472

farming go to Brazil farms, there have

runways where planes can land and take

473

off to take crop, off of the property that

I would say that is industrial farming.

474

Ryan: Yeah.

475

Yeah, that's probably the

last thing I wanna see.

476

David I would rather see big trucks,

big, this 18 wheelers hauling crops

477

off the land and big trailers.

478

That to me is farming,

not airplanes coming in.

479

That's crazy.

480

The other thing too, you talked

about it's a niche investment.

481

But if you think about futures, like

future contracts and for, It's all

482

based on really agriculture, right?

483

Whether it's a pork belly

or a bushel of wheat, right?

484

And think of how liquid and

how popular that market is.

485

It's all, those future that was

based on, farmland and agriculture.

486

For years and decades ago.

487

Good point there.

488

What's the risk profile

of investing in pharma?

489

Is it riskier than other

real estate asset classes?

490

We've talked a lot about data centers,

but there's commercial real estate.

491

Retail is how, what's the risk profile

compared to other asset classes?

492

David Chan: It's one of the reasons

why we love the space so much.

493

Farmland has generally shown much

lower volatility than most other

494

mainstream asset classes and

most other real estate sectors.

495

So we tend to look at, I think if

you look at public equities, s and

496

p five hundred's, a great barometer.

497

There, there's certainly a number that

are out there in terms of benchmarks

498

for us in farmland, we use something

called the Nare Farmland Index.

499

So the NARE is the National Council

of Real Estate Investment Fiduciaries.

500

And so homestead's a part of that of

that group and we report to the nare.

501

And we're able to see historical

502

Through this benchmark.

503

And so we know that, over the past

35 or so years, farmland has produced

504

about a 10% return on average

with a volatility of around 7%.

505

I'm rounding, but give or

take, that's the profile.

506

And so that's a really

compelling sharp ratio.

507

When you look at maybe the

s and p average return.

508

Again, I'm gonna go off memory.

509

I would venture to say it's probably like

11%, but with a volatility of maybe 14%.

510

And so you have to accept a lot more

risk in order to generate, maybe an

511

incremental a hundred basis points

in return over that time period.

512

So in general we've seen a lot

less volatility, and that's

513

true of real estate too.

514

We have less exposure to

economic cycles than say, office.

515

I picked on the pandemic before, no

one knows the pandemic like office.

516

So they'd probably tell me to

exit stage left if they heard

517

me talking about permanent crops

and and the pandemic impacts.

518

I would say we're more exposed, to,

to some natural factors than others.

519

Certainly weather can play a role in a

given season's supply or harvest yields.

520

We talked about water already,

but that's obviously a critical

521

component of our underwriting.

522

And then just the general supply and

demand factors and dynamics that,

523

go into these different commodities.

524

And so I think, overall when we look

at the risk profile of farmland, we

525

just see a very stable asset class

where, we like to think of it if

526

you're a fan of baseball we think we're

really good for singles and doubles.

527

Very consistent for singles and doubles.

528

But, if you're looking for a home

run or a grand slam, probably not

529

the right asset class for that.

530

Ryan: Yeah.

531

Yeah, I love it.

532

I'm so glad you brought

up the benchmark too.

533

That was one of my questions.

534

It was gonna be one of my

questions or maybe pain points

535

to invest in front of, if I'm.

536

Financial advisor,

investor, what's the proxy?

537

Where do I okay, I wanna include

this into investment portfolio, but

538

I would like to have a proxy that,

maybe backtest it, see what it, the

539

role it has in a investment portfolio.

540

Really glad you brought up that benchmark.

541

I was gonna be one of my

pain points or my questions.

542

Are there other pain points

of investing in farmland that

543

people should be aware of?

544

David Chan: Yeah, I certainly think

liquidity is probably top of the list, and

545

so it is not an asset class that, I would.

546

I would stay away from the mindset

of the flippant mindset, right?

547

This is not typically an asset class where

you can come in and make some operational

548

changes in two years and expect an exit

and expect to be paid for those changes.

549

It, it takes a long time for CapEx

projects to really materialize.

550

And it also, takes several

years to go through cycles.

551

And to ma to monetize and

maximize appreciation.

552

So you know, it, again, we come back

to the nature of the asset class,

553

which is that this is a biological

asset at the end of the day.

554

And so we can't speed up mother nature.

555

We can't speed up how long it takes

trees to grow or vines to grow.

556

And so I think, investors looking at ag

should come into it with a mindset of.

557

It, this is a multi-year investment.

558

And depending on whether you're looking at

it from a credit lens or an equity lens,

559

that may be, in the case of credit f.

560

Maybe two years at shortest end

to probably five years is where

561

we're, we tend to look at most

of our credit opportunities.

562

And on the equity side it

could be 10 to 15 years.

563

It's certainly a longer term investment.

564

Besides the liquidity, I would say

just the complexity that's involved

565

the operational complexity that we see.

566

We we have to be experts

on as many commodities and

567

regions that we're active in.

568

So today that's probably close to

two dozen different commodities.

569

Each of these commodities are going

to have their own supply and demand

570

fundamentals and characteristics.

571

And it's almost like two dozen different.

572

Industries in a way.

573

And so there's a lot of complexity there.

574

But we think that's necessary because

you, if you are going to invest in

575

farmland, we do think a diversified

portfolio is the best approach just

576

given the cyclicality of agriculture.

577

And so you wouldn't wanna be

overly exposed and say, have a

578

portfolio entirely comprised of.

579

Honey crisp apples.

580

Because if honey crisp apples are

going through a bear cycle during

581

the majority of your whole period,

you're not going to be a happy camper.

582

Ryan: Yeah.

583

I love honey crisp apples.

584

I think David, I think they're the best

apple out there, so I'm doing my part.

585

Lastly, you mentioned it earlier.

586

And it's really hard not to have this

conversation, especially when we're

587

talking about global investments

and just importing, exporting

588

the eco global economic impact.

589

Farming has and crops has what the

geopolitical concerns, you talked on it.

590

What impact does the Iran war

conflict, whatever you want to call

591

it what impact does that have on

investing in agriculture or farmlands?

592

David Chan: Yeah, certainly.

593

I think.

594

It's similar to tariffs in a way

where it's complex and there's,

595

we see some emerging headwinds

and some emerging tailwinds.

596

I would say probably the biggest

headwind is going to be, we do see

597

this as a price shock for fertilizer.

598

There's a number of fertilizer components.

599

I'll pick on a few of the biggest.

600

So there's DAP and map, which

are diammonium phosphate

601

and mono ammonium phosphate.

602

There's urea ammonium and potash

would be the fourth big one.

603

And then of course, nitrogen.

604

But all are related.

605

Many are byproducts of liquified

natural gas production.

606

And given that the Persian Gulf is such

a large producer of LNG, they're also

607

by defacto a big producer of many of

these different fertilizer components.

608

And I think the biggest thing that.

609

I would wanna share right now is

that, I think if the US was not a

610

large domestic producer of many of

these different components, it would

611

be a much more, alarming situation.

612

And we would see the

potential for supply shock.

613

That's not what we're seeing today.

614

We are certainly seeing the potential

and likelihood of price shock because

615

ultimately, this disturbance is going to

raise and has already raised benchmark

616

prices globally for fertilizer.

617

If you look at the different production

sources for US fertilizer for the

618

DPA map, we produce two thirds

of that ourselves here in the us.

619

We produce two thirds of the urea we

use for fertilizer here in the us.

620

We produce almost 90% of

ammonia here in, in the us.

621

And potash is the one that we're

pretty export or import reliant on.

622

I think we import almost.

623

Almost all of the potash that we use

for fertilizer are like 98% or so.

624

But our neighbor to the north

is a major supplier, potash.

625

So we got all of that, or the

vast majority from Canada.

626

The US is in actually a pretty good

place when it comes to sourcing and

627

the continuance of fertilizer supply.

628

But again we do certainly see that

the likelihood of prices increasing

629

more than they already have is

real and continues to go up.

630

The longer that this conflict stays as is.

631

So that would be the headwind,

the tailwind, I think.

632

There has been a emergence and really an

acceleration in the discussion of various

633

ethanol policies and renewable policies.

634

Largely as a reaction to the conflict

and one that we're monitoring

635

carefully would be a a mandate

of E 15 fuel oil year round.

636

So E 15 basically just means that

the ethanol blend in the gasoline

637

that you would put in your car would

be, it would have 15% ethanol in

638

it versus, typical 10 that we see.

639

It's seasonal, but generally, a

lot of places will blend at 10.

640

That would be a huge.

641

Demand creator for co

corn producers in the us.

642

It would cre, it would certainly

create the need for a meaningful

643

number of millions of of bushels of

corn to be sold to the fuel market.

644

Domestically opposed to needing export

markets either for food or for fuel.

645

And so we actually see that as a

tailwind and that's largely been spurred.

646

By this conflict.

647

And I, the benefit, I would say, just

zooming out for a moment, because

648

tariffs work the same way where we saw.

649

Some markets experiencing headwinds,

some tailwinds from tariffs last year.

650

I think because ag is so diversified

and we talked about two different,

651

two dozen commis, two different

angles to the market with permanent

652

crops, row crops the likelihood of

a uniform reaction of any sort of

653

macro event across all of 'em panning

out the same is actually quite low.

654

And so again, it just underscores

and underpins why having

655

a diversified portfolio in

agriculture is especially important.

656

Ryan: Wow, David.

657

Awesome conversation.

658

I loved It Like I said, I always

enjoy talking to agriculture farmland

659

just because of growing up with it.

660

But great conversation.

661

You brought a ton of great insight

and information that I'm sure our

662

listeners, I know I got a lot from

and I'm sure our listeners will too.

663

So thank you.

664

It's been an honor.

665

It was a lot of fun.

666

Where can our audience get more

information about Homestead Capital?

667

David Chan: It was great being

with you, Ryan, and this was

668

a really fun conversation.

669

I would say any listener who wants to

learn more about Homestead can check

670

us out [email protected].

671

And feel free to to send

me a message as well.

672

I'm happy to to help answer any questions.

673

My email's, just my name,

[email protected].

674

Ryan: Awesome.

675

David, thank you so much and thank you

for coming on, and thank you everyone

676

for listening to this episode is

Zephyr's adjusted for Risk Podcast.

677

You can watch.

678

All of our other episodes on the

Ze r YouTube channel and Spotify.

679

Please be sure to like and

subscribe to those channels and

680

give us a follow on LinkedIn.

681

Thank you very much and have

a great rest of your week.