Based on the latest agricultural news headlines, the sector may not seem like one that would be attracting investment.
But that’s not the sentiment at Alden-Iowa based Summit Agricultural Group.
Recently, the investment and farm management group announced a $300 million fund, named Summit Ag Opportunities I, LLC, to make investments in companies in agriculture or agribusiness primarily focused in the Midwest.
Summit Group utilizes six different funds to operate in the U.S. and Brazil. In the U.S., it operates a row-crop and livestock business in north-central Iowa and an asset management business connecting investors in agriculture. In Brazil, the group operates two funds that invest in farmland and the other operates a corn-based ethanol plant.
So, this new venture will be the company’s seventh fund and includes $300 million in capital.
Despite net farm income continuing to drop, commodities prices remaining below profitability, and farmland off its highs, Justin Kirchhoff, Summit Group’s managing director and head of private Equity, says the long-term picture of agriculture positions the Midwest as a great place to deploy capital.
“We’re looking up and down the ag supply chain for investment. Anywhere from ag input businesses to distribution and logistics,” Kirchhoff says.
It could include ag services, processing, and ag input operations. The funds will be used to invest in anything except production farmland, he says.
“If you look at profitability in that industry, it’s going to be at multiple-year highs for this calendar year,” he says.
With this fund, Summit is looking to take between 51% and 100% ownership of companies that it invests into.
The fund will operate for 10 years. Summit will deploy capital over a three-year period and then hold the investment for the remaining time frame.
“If you look at investment in agriculture, it’s an underrepresented sector of the investment world.
While the agricultural sector represents 5% of the total U.S. economy, it represents only 2% of the investment activity of financial firms.