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Supporting Family Farms and Local Communities
At Ceres, we typically make any yieldenhancing improvements (e.g., irrigation, drainage) within the first year we own a farm (often before the next planting) and lease that farm to top local family farmers who have the sophistication and the technology to optimize yields with minimum inputs. Today, leading farmers, including over 80% of Ceres’ tenants, utilize a suite of tools collectively known as Precision Agriculture to maximize yields while minimizing inputs
World Yield of Key Crops (Metric Tons Per Hectare)
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6
5
4
3
2
1 1972 1979 1986 1993 2000 2007
Source: USDA
Corn Wheat Soybean 2014 2021
(e.g., seed, fertilizer, chemicals). Farmers can target fertilizer only along the row of seeds, so they are not wasting nutrients on the space between the rows where the plants’ root systems can’t efficiently absorb them and where the leftover nutrients can end up as runoff. Farmers can also vary the seeding density and the application of fertilizer across a field to reflect variations in soil, as well as target use of herbicides, fungicides and pesticides to problem areas of fields to minimize usage. These hi-tech tools enable farmers to minimize inputs while optimizing yield.
Over the past 30 years, arable land has increased by less than 1% according to the FAO.
CONSERVING SCARCE WATER RESOURCES
It should be no surprise that arid areas in
the Southwest, California, the Plains and Pacific Northwest have become major farming centers. Farming in arid climates with irrigation is easier than in humid climates because there is less pest, weed and disease pressure on the plants. But irrigating deserts comes at a cost. In the U.S., the massive Ogalala Aquifer which runs from Kansas through large parts of Nebraska, Oklahoma, and Texas has been depleted by a combination of farming and population growth. And in California, wells are now over 1,000 feet deep and the water they provide is often laden with salt and minerals. Investors must recognize that land with depleting water resources is ultimately a depreciating asset where land with recharging water resources becomes an appreciating asset. Here again, economics and sustainability align. Water has not yet been explicitly priced in the U.S. as it has in other countries such as Australia, but Ceres and many observers believe it is inevitable in parts of the country with scarce water resources (e.g., California, Pacific Northwest, Great Plains).
¢5.149
Vegetables & Horticulture
California Crop Revenue (cents) Per Net Gallon of Irrigation Water
Source: UC Davis Center for Watershed Scienes
Fruits & Nuts
Rowcrops ¢0.734
¢0.146
In the meantime, water is priced indirectly via the price of land with perceived water rights / access. Whether directly or indirectly priced, farmers have huge incentives to reduce water use and to allocate water to those crops with the highest return.
States Where Ceres Invests
WI 4.8% NY 3.0% MI 29.4% OH 5.8% IN 31.4% IL 10.0% KY 5.0% TN 1.0% GA 4.6% AR 4.0% LA 1.0%
As long-term investors, Ceres has always valued water resources over water rights. We believe it is only a matter of time before water gets priced (directly or indirectly), or simply becomes unavailable for agriculture as water gets allocated to populations centers. It may take 5-, 10-, 20- or even 30-years, but we do not want to own arid ground when the water becomes prohibitively expensive or runs out. Arid farmland without irrigation has little-to-zero value. Consequently, rather than investing in areas with depleting resources and ill-defined, unpriced, and contested water rights, Ceres has invested in regions with robust and recharging water resources. 100% of our farms have robust water resources with no restrictions on water availability. For 80% of Ceres’ acreage, irrigation is supplemental: farmers typically rely on natural rainfall but can irrigate when/if needed. 81% of Ceres’ acreage is in IL, IN, MI, OH, and WI – the five states atop the Central Lowland Province (CLP) Aquifer. The aquifers underling California and the High Plains are being depleted, and
agriculture accounts for over 90% of withdrawals. In contrast, according to a recent whitepaper from Suez Advanced Solutions “irrigation accounts for only 22% of withdrawals [from CLP] … Steady, well distributed annual rainfall of 36-44 inches per year provides abundant recharge.” And for the 10% of our acreage where irrigation is required (ground in AR, TN, LA, GA), we sit atop renewing water resources.
MAINTAINING & ENHANCING SOIL
Agriculture cannot achieve its paramount
goal of feeding the world without maintaining and enhancing the soils in which we grow crops and adopting practices which sustain the fertility of the ground, rather than “mining” the soil for nutrients then moving on. Here again, economics are aligned with sustainability. Agronomic practices vary by region, but cover cropping, no- or limited-tillage, and crop rotations all have a role to play. With rising crop prices and land values – land is the sole limited factor of production – farmers and landowners have a strong incentive to protect the value of their asset by maintaining and enhancing fertility. Most responsible institutional farmland owners in the U.S. are supporting and certifying their acreage to the Leading Harvest Sustainable Farmland Management Standard. The Leading Harvest Standard was developed by a working group comprised of Ceres along with other farmland investors, the Conservation Fund, and other stakeholders. Leading Harvest provides investors, customers, stakeholders, and the public assurance that farmland is being managed sustainably. At Ceres we go further than just meeting the Leading Harvest standard. One of the keys of our strategy is forging long-term partnerships with our tenants so that our interests in stewardship are aligned. Many farmland managers believe they can get the best return through a series of one-year competitively bid leases. However, farmers on short term leases with no expectation of long-term tenancy are not stewards of the land. Their incentives are to mine the soil, rather than to invest in enhancing productivity. Ceres’ typical lease is three- to five-years, and our farmer-partner relationships typically last much longer. Furthermore, our
Our farmerpartners view Ceres’ ground as their own… they are our partners in stewardship
tenants look at Ceres as a long-term partner, and fully expect to be farming the ground they rent from us for many, many years. Consequently, our farmer-partners view Ceres’ ground similar to their own. They work in the off-season to maintain drainage and clear brush, and they invest in applying lime to correct/maintain pH levels, the benefits of which last for multiple crop years. In short, they are our partners in stewardship.
Ceres Partners was a proud member of the Sustainable Agriculture Working Group (SAWG) which brought together diverse stakeholders including farmers, conservationists, landowners, and investors to develop a single standard for sustainable farmland management. In 2020, the SAWG launched Leading Harvest, an independent non-profit established under the auspices of The Conservation Fund, to promote sustainability practices in agriculture. Leading Harvest is governed by a Board of Directors with equal representation from the Social, Environmental, and Economic spheres, and is supported by participating farmland managers and owners. The Leading Harvest Standard can be applied across diverse crops and geographic regions because it is outcomesbased, empowering farmers to adopt agricultural best management practices specific to their crops and their regions. It replaces a complex web of sustainability platforms designed around a single crop and/or region, and each with different data tools, metrics, and scorecards. This patchwork approach has been a barrier to participation. The Leading Harvest Standard includes Objectives which cover a broad range of issues from climate change and biodiversity to the resilience of Ceres croplands and the health of the communities in which Ceres farms.
Summary of Objectives:
1. Sustainable Agricultural Management to practice sustainable agricultural stewardship to improve crop production and ensure long-term agricultural sustainability.
2. Soil Health and Conservation to maintain or enhance soil health to optimize crop yield and protect long-term soil productivity on agricultural lands.
3. Water Resources to protect water resources and manage water for efficient agricultural productivity
4. Crop Protection to achieve crop protection goals while protecting people and the environment
5. Energy Use, Air Quality, and
Climate Change to conserve energy used by agricultural operations and minimize adverse impacts to the atmosphere and the global climate
6. Waste and Material Management to manage food waste, agricultural chemicals, and other materials from agricultural operations to minimize their adverse impacts on people and the environment.
SUPPORTING FAMILY FARMS AND LOCAL COMMUNITIES
Agriculture must be a good neighbor and
ensure that the local communities and farmers are economically sustainable. This is particularly true in parts of the developing world where agriculture is big-business, and the rights of small holders and native communities are threatened. Responsible farmland investors operating in these remote areas of the developing world understand this. Investors in South American farming understand that if you’re farming at the end of a very, very long road, then you provide shelter, food, education, and healthcare. In the U.S. the situation is different – crop farms are typically family operations, not big-business, and the best way to support farming communities is to help family farms remain economically sustainable. Ceres works with over 125 tenantpartners, and we classify 97% of those as family farms. Partnering with Ceres allows those family farms to gain scale via rented ground that they could never hope to achieve with their own balance sheets. The history of farming is one of everincreasing minimum efficient scale. In the period after the Civil War, the Midwest was broken up into 160-acre “Quarters” (160 acres is ¼ of a square mile), because that is what “one-man and one-mule” could effectively farm. Today, a minimally efficient corn and soybean farm is 2,500-3,000 acres (wheat, a less valuable crop requires even more acreage), and many families farm 5,000-10,000 acres. A 2,500-3,000 acre farm would be “two brothers and a hired man.” 1,000 acres of corn and soybeans, which sounds like a lot to most people, is a “side-gig” – more than a hobby but not sufficient to sustain a family. Farmland in the Midwest has been averaging over $10,000 per acre at auction recently. That means that a minimally efficient family farming operation needs to farm $25 to $30 million of ground. Very few farmers own all their ground, and those that do typically acquired their ground generations ago. More typically family operations own 500 to 1,000 acres and lease the rest. Ceres is an attractive partner for our family farming tenants because we actively acquire ground for them to farm, and we invest in improvements (e.g., irrigation, drainage, grain storage) that increase the productivity of the land. In other words, Ceres provides the balance sheet to help them expand their acreage, and we do so with a long-term partnership model, rather than the short-term transactional approach of most farmland owners
1,000 acres of corn and soybeans is a “side-gig” – more than a hobby but not sufficient to sustain a family.
PROMOTING RENEWABLES AND CONSERVING ENERGY
Agriculture is not only a user of fossil fuels, but also a major component of the solutions for renewables. Limiting greenhouse gas emissions by reducing use of fossil fuels is a key consideration. While Ceres does not control farming operations, we do own the center-pivot irrigation systems and water drainage pumps on our farms. Ceres has had a longstanding practice of converting diesel powered center-pivot irrigation systems, wells, and pumps on farms we buy to cleaner electric power. We also typically install electric-powered systems when we are adding irrigation to a dry-ground farm or pumps to farms in need of drainage. Today over 95% of the nearly 500 irrigation systems we own are electric-powered. At Ceres we are also actively engaging with utilityscale wind and solar developers to help them bring their projects to fruition. We currently have 13 wind turbines on our farms with a combined capacity of 39 MW. As more and more states mandate higher and higher renewables requirements for their electricity supply, developers are looking for suitable acreage. Meeting these mandates will require a massive buildout. A 125 MW utility-scale solar farm (enough to power over 100,000 homes) in the Midwest will require approximately 1,000 acres of land. Ceres has been actively working to promote solar development for nearly five years and today over 34,000 acres (24% of our portfolio) are optioned to solar developers. Supporting sustainable solar development is good for our investors. Option payments alone contribute significant revenues, and as farms are developed, we expect to realize significant appreciation – solar rents and purchase option values are approximately 2.5-3.0 times farm rents and values.
WALKING THE WALK
It is one thing to talk-the-talk and espouse principals of sustainability. It is another thing to walk-the-walk. At Ceres we have always been long-term stewards of the farmland we manage, and we have longstanding policies to support the 5 principals of sustainability. Moreover, we have performance indicators to measure our progress.
Produce More with Less Resources Conserve Scarce Water Resources Expand Renewables & Conserve Energy Maintain & Enhance Soil Health Support Family Farms & Local Communities
Partner with farmers who have technology to optimize inputs Ensure efficient water usage practices are implemented
92% of farms utilize precision agriculture / variable rate fertilizer
>80% of irrigation systems utilize remote targeted irrigation systems 100% irrigated acres on robust unrestricted water resource
80% of irrigated acres supplemental (irrigation not necessary for yearly crop production) 100% of wells meet all regulations >95% of irrigation systems on electricity 24% of portfolio optioned for solar development 13 wind turbines with combined 39 MW capacity
Invest in regions with renewing resources Evaluate local water resources and regulations of new acquisitions Confirm wells meet all regulations Convert irrigation systems to electric Actively seek solar projects across our portfolio Participate in wind development projects Ceres is long-term steward of farmland and a founding member of Leading Harvest Require soil tests to confirm key nutrient levels are maintained Enable family’s to farm more acres than they can own, thereby bringing additional family members into operation Welcome open dialog with all stakeholders
Certification to Leading Harvest Sustainable Farmland Management Standard
50% of farms utilize no-till or limited-till
100% of leases require soil testing >125 family farmer-partners with longstanding relationships 100% of properties listed publicly on website to promote transparency for community stakeholders
18 Shipyard Drive Suite 2B Hingham, MA 02043 Main Office
806 Howard Street Suite 200 South Bend, IN 46617
(855) AG CERES (855) 242–3737 154 West Superior Street Chicago, IL 60654
This material is not an offer to sell, or a solicitation of any offer to buy, interests in the Fund. Offers are made solely to institutional investors and high net worth accredited investors and only by means of the Fund’s latest Private Placement Memorandum.
The information and opinions presented in this material have been prepared by the Manager and/or obtained by the Manager from sources which the Manager believes to be reliable; however, neither the Fund, the Manager nor Ceres Securities guarantees the accuracy, adequacy, or completeness of such information.
