Ancient Tree Crop Provides Compelling Investment Opportunity

Share Article

Mason & Morse Farmland Group Partners with TerViva Regarding Pongamia Projects

While most agricultural operations consume fuel, feed and fertilizer, it is quite unique to see a farming model that is actually producing it

A California company has come up with a compelling twist on farmland investing for private clients and institutional investors focusing on real assets. This farmland investment model, however, is considerably more proactive in driving total returns than traditional “buy and hold” models. Since 2009, TerViva Inc. has been establishing acreage in Texas, Florida, Arizona and Hawaii in a tree crop called pongamia.

Pongamia is an ancient tree that is native to Australia and India. It is frost tolerant, but not freeze-proof. It is also happens to be a legume, which is at the heart of what makes the business model so interesting. The tree yields a generous annual nut crop that is harvested with conventional shakers, such as those used by almond and other nut growers. The shelled nut contains a large seed pod resembling a lima bean. That seed has approximately a 40% oil content that can be easily refined into a very high-grade biodiesel, bio-jet fuel, or even other high-demand bio-chemicals like oleic acid. The remaining seedcake can then be used as a high-protein animal feed or a high-nitrogen fertilizer. And because the tree is a legume, it is fixing nitrogen so the soils are improved and pasture grasses can even be inter-cropped for cattle grazing. The tree has a productive life of well over 50 years. Doing a simple Internet search for “pongamia and biodiesel” will reveal a wealth of information on this hardy tree.

While most agricultural operations consume fuel, feed and fertilizer, it is quite unique to see a farming model that is actually producing it – in the case of the oil production, about 400 gallons per acre. For institutional investors, those features alone could be a great portfolio offset/diversification for their other farming operations that are consuming those inputs.

The twist in the conventional farmland investing model is that this tree can thrive not only on marginal soils (as in its native homeland) where food crops struggle for yield, but it can also be a perfect replacement crop for the thousands of acres of abandoned Florida citrus land.

TerViva has approached Mason & Morse Farmland Group regarding investor interest in pongamia projects. TerViva’s minimum project size is 500 acres and will assist in a practically turnkey project. TerViva can supply the projects with their elite genetics as well as secure the off-take at harvest. Two of the largest citrus growers in Florida are available to act as to project’s operator for planting, maintenance, and harvesting. Mason & Morse Farmland Group will source the Florida land for investors interested in a diversification like this.

Because this is a tree crop, yields will not be commercially harvestable until at least year 4. However, converting barren acre of land to an acre planted in pongamia with irrigation improvements could arguably double the valuation of that acre in the first year. So even though there is no current income in those early years, this crop can have a very powerful additive effect to the performance of an overall traditional agricultural portfolio. TerViva’s pro forma projections suggest a 10-year IRR close between 18 to 22 percent depending on the land costs and conservatively assuming present day prices for fuel, feed, and fertilizer.

The formula for success in these projects is elegant in its simplicity: cheap land + high income crop = Farmland Investing 2.0.

If you would like more information, please call Tom Schenk at 509-251-2565.

About the Author

Tom Schenk grew up in Missouri, lives in the Pacific Northwest, and often travels extensively to work on farm value-improvement projects in Texas and Florida, and Arizona. He claims to be one of the few rednecks to graduate from the University of California – Berkeley where he received business degrees in both Real Estate and Finance. He spent a great part of his career with major Wall Street firms, 22 years as a commodity trader, and even had his own investment advisory firm that was bought out in 1999. Throughout Tom’s career, his work has focused on asset classes that are most appropriate for the economic times we live in.

Investment-grade farmland is just such a space where traditional farming operators must communicate information on a subject that can be far outside of the experience or understanding of many institutional or private client investors. Tom likes the challenge of bridging the communication gap between a sophisticated investment and the investor’s ability to understand and be comfortable with it. Buyers and sellers always have a value set in their mind as they enter a negotiation and there is an art in finding the middle ground where both parties can walk away satisfied. Life’s too short to do it any other way.

Share article on social media or email:

View article via:

Pdf Print

Contact Author

Bart Miller

Stephen Kretsinger
Follow us on
Visit website