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Brandon Zick: Harvesting Alpha Through Farmland - [Making Markets, EP.7]
Making Markets
Low Risk and High Return Crops in the Midwest US
The lowest risk and potentially lowest return crop in the Midwest US is found in parts of Iowa and central Illinois, where farmers typically rotate between corn and soybeans due to their high quality and prices. This rotation is effective as corn is a nitrogen user while soybeans are a nitrogen fixer, providing a good balance in soil nutrients. The Midwest region generates around a 2% cap rate for institutional investors. However, the fund discussed targets a 4.5% to 6.5% cash on cash return on land, with a 10% cash on cash return on CapEx improvements. The fund emphasizes maintaining discipline in investing and avoiding overpaying for properties that do not meet their cash flow rate standards, regardless of capital availability. This approach has allowed the fund to attract significant investor interest and maintain a competitive advantage throughout different market cycles.
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