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Audio Transcript

Todd Kuethe: Thank you for tuning in. My name’s Todd Kuethe. I’m a professor here in the Department of Agricultural Economics and part of the Purdue Center for Commercial Agriculture. I’m joined by my co-host

Chad Fiechter: Chad Fiechter also an Ag Economist here in the Department of Agricultural Economics.

Todd Kuethe: So we are economists. We’re trying to learn and figure out how the ag economy works. So we have a series of conversations in our regular job trying to figure out, we don’t understand this problem, how the economy works. And so we started recording them. This is our second episode that we’ve released, so if you’re tuning in for the first time, you can go back and check out the one we did with Matt Erickson, which was outstanding. We talked about Senate Ag Committee, how that works.

Tell us a little bit who we’re meeting with today, Chad.

Chad Fiechter: Kyle Maple and Pete Drost, they were grad students in this department and they now work in the farmland investing space for a farmland investment company in

Todd Kuethe: Indiana,

Chad Fiechter: in Indiana, US agriculture.

Todd Kuethe: I’ve heard you describe our podcast, one of you use is sort of peeking under the hood. Trying to figure out how this stuff actually works.

Chad Fiechter: Yep.

Todd Kuethe: And I think the farmland investment space, something we hear a lot of people ask us questions about or you’ll definitely hear opinions about it, but we think it’s like something that we don’t totally understand.

Chad Fiechter: Exactly.

Todd Kuethe: We think a lot of people also don’t understand, maybe even misunderstand it. Right. So Kyle, why don’t you introduce yourself to the audience? Tell us who you are.

Kyle Maple: Yeah. Kyle Maple. I was born in Kokomo, Indiana, raised on a grain farm and, and had commercial hogs until I was around 10 years old. Pete and I work for US Agriculture. It’s a privately held investment management firm focused on the farmland asset class. My role currently is director of asset management, so oversee acquisitions and management of the the properties in our portfolios.

Todd Kuethe: Perfect. Pete, do you wanna introduce yourself?

Pete Drost: Yeah. Pete Drost. I grew up on a farm, although. Not in Indiana. I was actually born in Canada, lived there till I was about seven, and then kind of moved everywhere. Ended up in the Texas panhandle for a little bit of time, and then went to Oregon. I lived on a hay farm out there and then picked a college close kind of to Canada. Ended up at Purdue and then, yeah, as Kyle mentioned, worked for US Agriculture. He’s my boss. I’m an investment analyst that works under him, so.

Todd Kuethe: Perfect. So for our audience listening at home, it might be helpful for them to envision a face to put to this voice. So, which celebrity to both Kyle and Pete have people told you, you look like?

Kyle Maple: I actually have one. I’ve, I’ve had multiple people tell me this. It’s mainly happened when I was an undergrad in the tailgating fields here at Purdue, so I know. Yeah. Uh,

Chad Fiechter: So it has to be true.

Kyle Maple: Yes. The main actor in Dexter I’ve been told I look like.

Chad Fiechter: Your tailgating persona looks like Dexter.

Kyle Maple: That’s what I’ve been told.

Chad Fiechter: Okay. Alright.

Todd Kuethe: Like see, Pete, what have, what have you got? He means business.

Pete Drost: That’s right there. That’s right. I’ve been told lately, Will Ferrell probably.

Todd Kuethe: Okay, I can see that. Yeah.

Pete Drost: Or the guy from Napoleon Dynamite. The main character there.

Chad Fiechter: Okay.

So if we could get into kind of what is it that you guys do on a day-to-day basis

Pete Drost: Basically, so Kyle manages, he’s asset manager and under him there’s a bunch of farm managers. And then those farm managers, they’ll come across various deals and then I’ll be the first point of contact. So one of my opening tasks, if we’re gonna look at a farm to potentially invest in is I’ll get a acre numbers, historical yields a rental figure, and then I’ll kind of do some back of the napkin math on it to see if we should entertain making an offer or not.

Then assuming we have a good offer price and then an LOI will get sent out and then if that gets accepted, then it’ll come.

Todd Kuethe: Whoa. What is an LOI

Pete Drost: Letter of intent.

Todd Kuethe: Okay. Okay.

Chad Fiechter: And I wanna go, I wanna go back. So these farm managers are all over the U.S.?

Pete Drost: Yeah. So Kyle was Midwest, all the way down to North Carolina. And then out west all the way up to Colorado. Yep. And then across the Continental Divide, there’s another farm manager who manages all the Pacific Coast assets from Idaho all the way down to Imperial Valley, California. And then in the south there’s another farm manager that manages that region as well. Yeah.

Chad Fiechter: So when you say like they’re coming across deals like this is just these, they’re in the communities and

Kyle Maple: Yeah. So,

Chad Fiechter: and they’re seeing signs. What, what, how do you,

Kyle Maple: A big part of what we do to try to meet the demands of our clients is, is find stakeholders that have access to or, or knowledge of local marketplaces and farmland that that could come available for sale. That’s a wide ranging group of people, but we’re constantly trying to broaden our contact base, whether that be bankers, appraisers, real estate

Chad Fiechter: Oh, I see.

Kyle Maple: agents, farmers, right. Yeah. That, that are looking for, for capital. And so hitting on all those networks and trying to find access to land that that could become available and, and hopefully purchased by us and managed by us going forward.

And then maintaining relationships with operators going forward when we purchase an asset for a client, those farm managers, including myself are tasked with managing those properties. A lot of times that is through a passive lease, structuring a lease that works for both sides of the equation. The farmer, uh, as well as our client. And, and so it’s an ongoing relationship. We hope it’s the start of a 20, 30 year relationship.

Chad Fiechter: I see.

Todd Kuethe: So, so like when you think about these, these clients, so these are folks that are looking to get investment exposure to the agricultural sector for some reason, right? It meets their portfolio needs or investment objectives. So, thinking about like myself, right? So I’ve got a retirement portfolio and I’ve got a financial manager, and sometimes we set a goal, right? If he says like, oh, you should be like putting away this much money for every time, right? Or, you know, I’ve got more money than I thought we had. Like, so we were getting some renovations in our house and it didn’t cost as much. So I, I’ll have more to put in my retirement account. And so I’ll go to him and say, I’ve got this much money, can you help me deploy it? Right.

So how much is it like people coming to you saying, we’ve got this much, we’re looking to invest, and then you go find those investments? Versus you see some kind of investment opportunity and then you go to your existing clients and say, Hey, if you’re interested, there’s also this opportunity, or is it, does it work both ways? Uh, or is it one way or the other?

Kyle Maple: Primarily it’s the first. We have a director of business development named Evan Newton, who’s constantly out there knocking on capital doors trying to raise capital that has interest in this marketplace.

And you are correct, Todd. What they are trying to accomplish is typically it’s institutional investors like a pension fund that we are courting and they are interested in this space because it’s a great diversification from bonds and equities and, and historically it’s been a great inflation hedge. It’s a capital preservation, right? It’s, and, and, and pretty consistent returning asset with a consistent cash flow. And those are kind of the main drivers of why they wanna be in this space. But we are going and actively seeking them.

And, and a lot of times those institutional investors, when they want to change their investment portfolio, they would have consultants and they might put out request for proposals of, hey, we, we think it’s time to get into the farmland space. Let’s go out and, and try to source who are the managers we want to invest through. And so we would respond to those as well as, again, cold calling and trying to find people that, that see the value in farmland in a portfolio.

Todd Kuethe: So another thing that’s difficult for the farm audience to think about, and you know this ’cause you’re a farmer and Indiana farm families, like how big. Like how many outfits are there like yours? Or like, is, is there, is there a lot of people kind of in this space? Is it relatively niche and small and there’s a handful. Like could we fit ’em in a car, fit ’em in a bus, fit ’em on a cruise ship? Like what’s the,

Chad Fiechter: there’s different sizes of buses too.

Todd Kuethe: Yeah, that’s, I didn’t even think about that. Yeah. See this is why Chad’s here. Yeah. I should say those like little buses that like you get at the airport to take you to the parking.

Chad Fiechter: Yep.

Todd Kuethe: Or like a full size city bus.

Chad Fiechter: Yeah.

Todd Kuethe: Or even one of those double buses that hinge, if you know.

Chad Fiechter: Yeah,

Kyle Maple: Yeah. No, that’s really helpful guys.

Todd Kuethe: See, this is good. We’re all learning today.

Kyle Maple: Yeah, that’s right. No, I started in this business in 2011, and I would tell you that it was a handful back then. And it has grown. There are more investment managers in the farmland space. Now, there are some that are very specialized. Meaning they are focused solely on, on sustainability, or even some of them are focused solely on debt rather than equity. To date we’re an an equity investor, so, so trying to take fee, simple title into the real estate itself.

So it has grown. There are quite a bit more, I couldn’t put a number on it, but it, it’s been a space that has expanded. Competition’s expanded.

Todd Kuethe: But, but not, but, but it’s not like we’re gonna run into them all the time.

Kyle Maple: No, no, no.

Todd Kuethe: It’s not, it’s not like a, like a

Kyle Maple: relative to equities or, or something like that.

Chad Fiechter: Yeah, yeah.

Kyle Maple: Like it’s, it’s, we are a tiny investment class, and so the amount of management firms in this space align with that, right?

Todd Kuethe: Yeah. So, so more bus than cruise ship.

Kyle Maple: That’s a good way to put it.

Pete Drost: So short bus is not what we’re saying? Yeah.

Todd Kuethe: Oh, man.

Chad Fiechter: That’s a, that’s loaded. It might be bus, what you said was It’s a hinged bus. It’s like, it’s a double, but not quite a double.

Kyle Maple: Yeah. Yeah. No, we, we were, we were a van and we might be a bus now.

Chad Fiechter: Yeah. I think that sounds right. That sounds good.

Todd Kuethe: Good. All right.

Kyle, what’s your day-to-day tasks?

Kyle Maple: Yeah, like Pete said, I actually still to date do a lot of farm management, so I’m out on the farms speaking with our tenants and negotiating leases with them. And then still sourcing new acquisition opportunities. So again, trying to hit on a variety of networks that would’ve access to farmland and finding deals that, that would make sense for our, our clients.

On top of that, as my current role, I, I am also helping with acquisition opportunities in other regions from the other managers across the U.S. and so if we’ve got a opportunity in Idaho, I’m evaluating that. Asking questions to make sure we’re thinking through all the variables that, that try to, again, reduce risk for our clients and, and, and the investment of that specific asset. So right now it’s touching a lot of different real estate across the country and supporting the other departments in our business.

Chad Fiechter: So does that, does that. Also include travel? Like are you, are you physically going to these properties to see them?

Todd Kuethe: Yeah. Like how, how often are you

Chad Fiechter: Yeah

Todd Kuethe: on the road?

Kyle Maple: Yeah. I, I’d say at a minimum once a month and probably

Chad Fiechter: Okay.

Kyle Maple: more when you count just driving and seeing our farms here in the Midwest, so.

Chad Fiechter: Okay.

Kyle Maple: It’s a decent amount of travel.

Chad Fiechter: Mm-hmm.

Kyle Maple: Luckily, probably not as much as other industries, but it’s also good. Right. The only way you’re gonna learn apples in Washington is to go out and see what the bottlenecks are, see what the markets and the challenges are of getting those apples from the field to the, the packing facility. So,

Chad Fiechter: Yeah, ’cause the, the properties you’ve purchased could potentially be like long term crops as opposed to the traditional row crops that we think about in the Midwest.

Kyle Maple: Yeah, we, we would segregate those as permanent crops and annual crops. And in permanent crops, you’re absolutely right. You’re talking trees, bushes, vines, and, and hey, there’s a lot of value in those assets above the ground, let alone the cost and and value of the dirt itself. Mm-hmm. So we do look at those differently. In fact, many times, not all the time, we operate ’em differently. We will what we call directly farm, it’s really, it’s hiring an onsite manager to take day to day operating decisions.

Chad Fiechter: Oh, I see.

Kyle Maple: And we would own the crop, we would own the inputs going into that crop. For the row crop land, corn, soybean, even, you know, some of those veg crops. We have some farms up in Michigan, for example, that would grow a variety of vegetables. We’re gonna passively leases, we’re gonna find a high quality local operator, like I said, hopefully, and developing a long term relationship where they’re gonna be on it 20, 30 years and, and constantly just try to keep up with market rental rates for that, for that land.

Todd Kuethe: So, Pete, what about you as the more junior person? How much time do you spend on the road? More or less than Kyle?

Pete Drost: Less so

Todd Kuethe: May. Maybe we should step back one step, which is, so Chad and I also, as professors, we work with a variety of students, undergrads, grad students. Tell us a little about your training that you did before this.

If I had a college sophomore that comes to me and says, man, this farmland investment space is awesome. I wanna work in there, what are the activities that we should tell those students to do? Or skills they should pick up so that they would be attractive to you and other firms like yours.

Kyle Maple: Really, we, we are financially, you know, finance is a major part of what we do. Farmland sounds like a pretty easy thing when you just buy and, and lease it. But, you know, we work with a, what I’d call, uh, sophisticated investors and they wanna understand what that asset class does relative to some of their other investments. So we do discount cash flow models to see what we. Think that asset will return, calculating present values and IRs and that goes all the way down from just buying the farm initially to capital expenditure projects that we wanna see done on the farm.

So a big part of that is, is you need to have some understanding of, of finance. I, I think it’s 4 24 here in the ag econ department, if I remember right, is the, the class. But Pete, what did I miss there in your mind?

Pete Drost: No. Yeah, I’d say the finance part of it is, is huge. And knowing those time value and money equations.

And then if you’re gonna give a student advice for once they’re done, their bachelor’s degree and they’re considering going for a master’s or what they should do to be attractive to an investment management company. I’d say one thing I didn’t learn about until, I guess after I started at US Ag was the CFA.

And it’s, it’s, it’s an accreditation program. They have, I think it’s like two or three years long, and it’s just strictly on like finance and modeling and time value money. And they get into some theory, but nothing like you’d get into like in a traditional master’s program. But yeah, so

Todd Kuethe: My understanding is it’s a little bit more like pragmatic or like, like it’s more about like, you know, here’s how you buy bonds and here’s how bonds work and how, here’s how you would sell bonds. As opposed to like, theoretically, where do interest rates come from or something, right?

Kyle Maple: Yeah.

Todd Kuethe: So a little bit more on the ground. I, anyway. I, I too need to look into it a little bit.

Kyle Maple: No, I, I think you’re right though. I would always equate it to give a, a master’s in MBA, for example, in finance is probably something that’s gonna touch on a hundred square foot, but an inch deep. And this is, you know, a hundred feet, a hundred inches deep and one square foot is what CFA is. I said that terribly, but I think

Todd Kuethe: No, no, no. I think you said that great.

Kyle Maple: Yeah. And there, there’s other tools like that. There’s also a, a chartered alternative investment analyst, and, and that is very similar. It’s focused on, uh, it’s. It’s a little bit of a shorter program, but focused on alternative investment buckets and then farmland actually is included as an alternative investment.

So there are other tools to help you dig into and, and like Pete said, a master’s program. Pete has his master’s in agricultural economics. I did the MS MBA program, the joint program with Indiana University and Purdue University here. Through the ag econ department. So there’s other ways to get training.

The only thing we didn’t touch on that I do think’s important, and it’s important in anything you’re gonna do from a career perspective is, is communication. I think it’s, it’s imperative that we are good communicators to both our clients and to our operators on the farm. And, and the only happens by, by speaking with people, challenging yourself to get up and, and do podcasts, whether you’re good at ’em or not.

Todd Kuethe: Okay. That’s us. Chad, sorry about us. He said not good Adam. That’d be us.

Chad Fiechter: Yeah.

Todd Kuethe: What else should we ask?

Chad Fiechter: Okay, so one of the questions I have is related to the job is like what surprised you the most in kind of the roles that you have that you, you didn’t expect?

Kyle Maple: Let’s start with Pete. I’ve been doing this too long for that, that question

Todd Kuethe: He has. He’s never been surprised.

Chad Fiechter: He’s never been, actually, that doesn’t shock me outta you.

Pete Drost: One thing that surprised me, I’d say probably. Well, I had really no exposure to permanent crops, but just the timelines that are associated with when people get paid on those and sort the cycles that farmers deal with in that region of the,

Todd Kuethe: So I too have no clue about permanent crop. W give me, can gimme like a concrete example of one.

Pete Drost: So, like for example, like I didn’t know that Apple’s stored so long in like controlled atmospheric storage.

Todd Kuethe: Wait, how, how long do they store? I don’t, like, literally I am clueless.

Pete Drost: Like, I think it’s, I think it’s like 12 to 18 months.

Todd Kuethe: Oh wow.

Pete Drost: In storage. So like,

Todd Kuethe: So when I’m buying an apple today, it might be like, it might last year, might even been picked last year.

Yeah. Wow.

Pete Drost: So like, and all that stuff, you know, then that affects how soon a, you know, a farmer gets paid and then you think about like, you know, if you’re not gonna get paid and you know, until next year, how do you. And you had, you know, consecutive years of, you know, bad prices. How does that impact your ability to get financing?

And then not only that, but just like those crops that you know, aren’t, that don’t have like a futures market. Mm. You know? Getting good price data. If you’re just entering a space, it’s kind of hard to do, like if, if you’re not already there,

Todd Kuethe: When you’re putting together your initial analysis about whether or not we should invest here.

Pete Drost: Yeah.

Todd Kuethe: Part of that is prices. Right,

Pete Drost: Right. And then also what could you expect to get from your yield. Right. Right. And then two, like in permanent crops is just like, like how variety dependent a lot of stuff is too. Like especially in apples and even like in, in blueberries and, and just, and it’s all prices and stuff that you, it. Initially would be hard to come by if you’re not in the industry, which really, you know. Yeah, it really makes the, you know, the analysis part of entering something like that a little bit more difficult than

Todd Kuethe: Do, do you have a pro tip of like a kind of apple, I should be eating

Pete Drost: A kind of apple that you should be eating

Todd Kuethe: Because this is a i I,

Kyle Maple: What’s our greatest acreage?

Pete Drost: You’re like cosmic crisp.

Todd Kuethe: I know. So I’ve actually been doing the Cosmic Crisp. They’re pretty good. A good apple. Yeah. No, a buddy of mine, we had this discussion. I was at a bachelor party. This tells you like middle aged bachelor party.

Chad Fiechter: Your talking apples.

Todd Kuethe: No, the question was, what is the thing that you spend a lot more than like the regular, like the low, like Yeah. There are things that we buy cheap and there’s things that we splash money on. Right? Yeah. And it’s like what is the thing that you would, would be the last thing you would give up spending extra money on?

Chad Fiechter: Yeah. Great. The elitist professor just said, splash money on it. And I was worried about alienating people

Todd Kuethe: And one of the guys at the bachelor party said, apples. And I was like, I never, he’s like, he’s like cosmic crisp apples. He’s like, if it’s cost more, I’m still gonna buy ’em no matter what. Like that’s the, that’s my jam. And I was like, I’ve always been a honey crisp guy. And so he got me to convinced. Switch. But, but this is, this is my, mine was coffee. Just to let you we’re not splashing money on like I’d get a better, I’m like, I’m always gonna have the best.

Chad Fiechter: Well we’ve had this discussion ’cause mine is bread.

Todd Kuethe: Yes. Yours is bread.

Kyle Maple: Bread. Oh. Never guessed bread.

Todd Kuethe: Yeah, no. The thing about bread, Chad convinced me, is it’s a way to have something luxurious in your meal that’s cheap. So like. Yep. If you buy the most expensive, best bread, yeah. That’s still cheaper per like mouthful than doing the same thing with steak.

Chad Fiechter: Yeah,

Kyle Maple: But I do like steak more than bread.

Chad Fiechter: No. So I’m not, I like bread more than steak. I’m not disagreeing with you, but I think that the thing is, is I love sandwiches. So if you up the bread game, you can take a, a mediocre sandwich to a great sandwich with just bread.

Todd Kuethe: Yes. Yeah, I agree with that.

Chad Fiechter: Agree or disagree?

Kyle Maple: Well, I’ll have to give it a shot. I’m, I’m pretty, pretty cheap on my bread. I think.

Todd Kuethe: See, we’re already changing the way people behave. Yeah. This is great. This is really, okay.

Chad Fiechter: Wait a second. I wanna ask the Apple question because like we’ve had, Pete, you and I have had discussions about this, that, but those apples as we get new varieties of apples and you get lots of investment in those apples. Like Honey crisps are a lot cheaper today than they used to be. Mm-hmm. Right when they first came out. Because we have so many acres in Honey Crisp. Are we seeing the same thing with like cosmic crisp, like as more cosmic crisps like, or how do they. Control sort of the supply of those apples.

Pete Drost: Yeah, that’s the, that’s the hard part is that, ’cause it’s such a long lived asset that you know it, you know, once you have that oversupply problem, you’ve already put so much money into getting this tree in the ground and producing and all those years of non-productive, you know, just dumping expenses into ’em and then all of a sudden if everybody did the same thing then, you know, it’s, it’s a big deal to all of a sudden just rip that out and, you know, put another variety in.

So there are some varieties. Where those, those you know, rights of who can plant what are more controlled because of what’s happened.

Chad Fiechter: Okay.

Todd Kuethe: Oh, there’s like licensing or something?

Pete Drost: Yeah, but with those, I mean, there’s obviously extra costs, like the people who control whether or not you can plant those, you have to pay them, you know, royalties.

Todd Kuethe: Big apple.

Chad Fiechter: Big apple. Yeah. When you think about the work that you do and why people work with you, are you marketing farmland to them as an asset? Or are you marketing your services as the asset manager?

Todd Kuethe: Oh, I like that.

Chad Fiechter: Does that question make sense?

Kyle Maple: You know, I, I do think I understand the question. I I’m even gonna break it up even further, right?

Chad Fiechter: Wow.

Todd Kuethe: Yeah, yeah.

Kyle Maple: Easy, easy, man.

Todd Kuethe: This is why we get pro here.

Chad Fiechter: There’s a whiteboard behind us. Do we need, do you wanna marker?

Kyle Maple: Well, I do have a short term memory issue, so maybe the… really you’re talking about two different. You know, as, as, as we look at ourselves as a firm, we’re certainly trying to sell our services and the asset class to capital of why it would make sense in a portfolio and why we think we’re, you know, the standard in, in management in this asset class.

But at the same time. We’re trying to sell our value to the farmers, right? Like, Hey, why, why are we a good resource for you? Why, why should you consider us being a partner in your operation? So I I,

Chad Fiechter: Wait a second. So you’re saying these are the people who are gonna operate. The assets that you buy.

Kyle Maple: Yeah.

Chad Fiechter: These are your partners. So these are, these are the tenants. Yeah. Yeah. And you are saying you are convincing them that you are a good

Kyle Maple: Look. If we have a thousand acre high quality farm, it doesn’t take a lot convincing, right? Sure. Like, hey, we, we get people knocking on our doors wanting to farm that, but like

Chad Fiechter: Sure.

Kyle Maple: At the same time, if we have farmers who wanna free up working capital or want to 10 31 into a, a, a piece of ground that sits right behind their shop, you know, wanna pay off some debt, just get in a better position. We, we, we’ve done structures where it’s a sale lease back where we can,

Chad Fiechter: yeah. Okay.

Kyle Maple: Purchase the ground from them. Yep. And, and obviously enter a a, a lease where both parties feel comfortable about the terms, feel comfortable about establishing a relationship Yeah. That, that we can foresee going into the future. So in that scenario mm-hmm. There is a bit of a sale of hey, here’s why we could be valuable to you in that arrangement. Right. And so, yeah, it’s probably a little bit less when we are bring, we have the land already. We control a lot of farmers look and say, Hey, I’m. One way to grow my operation is to farm more acres. Right. And so I need to understand, I, I need to get to know those guys. Yeah. But at the same time, we, we can be an alternative capital provider to farmers outside of the traditional debt path.

Todd Kuethe: So, so like if I own a farm

Kyle Maple: Yeah.

Todd Kuethe: And I’m operating and I say like, you know, I want to pay off some debt or maybe dial back or something, or change something about my structure, then I could work with you. You would buy that farm from me. I would lease the access back to farm for some amount of time. Yep. Would agree to. Yep. Yeah. Okay.

Kyle Maple: And all that would be very much negotiable, right? Yeah. In that situation, the farmer owns the land, we’re gonna come to him, kind of, You’re selling arms open. Yeah. Hey, hey, here’s how we approach it. We’ll, we’ll, I, I feel really confident saying, we’ll be very transparent of what’s important to us and, and how we want to establish the start of this relationship.

And again, we’re firm believers in, in trying to make this a long-term relationship between us and a, and the farmer, we think that that provides aligned incentives to, to improve the land and, and not make short-term decisions to just, you know, get a higher cash flow from that property. So,

Chad Fiechter: Okay. Great answer.

So what, what would make the services that you provide in this space successful? Is it the knowledge of sort of farming and you can communicate that to these investors who are so far, like why is an investor needing services? Right? This isn’t, this isn’t me putting you on the spot. I’m assuming that there is a value, right? What is that value that you bring?

Kyle Maple: Yeah. Look, we mentioned it earlier. Farmland as an asset class relative to other asset classes is tiny. It’s not something that people are well versed in outside of, if you’re, you’ve, you’ve lived, lived in this industry, this world, right? And so a big part of that is they want to, capital wants to find people who does truly understand that asset class. What are the inherent risks of that asset class? Sure. How do you develop a portfolio where, where we are going to get that consistent cash flow return that, that preservation of capital and capital growth at the same time. Right. That’s a huge thesis in in owning farmland.

And so they would hire a group like us because Yeah, we think two things. We think we understand how to diversify a portfolio. Mm-hmm. Within an investment mandate. Right.

Chad Fiechter: So within a unique asset class that’s very small. Yeah. You’re saying you can even diversify a portfolio of farmland.

Kyle Maple: We, we certainly try to, and that’s done geographically. That’s done through crop type. That’s even done through operating structure lease type right there, that you can get some diversification benefits from that. And so that, that’s how we go about.

And the, the second thing that we’re really proud of and, and what we sell ourselves on is. Is again, our background in agriculture runs deep. We are people who, who get it and, and understand the challenges on the farm and, and so it, I think that comes through on the capital side. I believe it does. Mm-hmm. I also think it comes through on the farm side, like when we’re on the farm and, and are talking to operators. You know, I’m not, I’m not farming every day, obviously, but because of my background, I think there’s a comfort level that, that I can, that, that we can communicate well to each other, and there’s value in that on the farm level itself. So.

Todd Kuethe: So we have these kind of conversations as professors with people across the ag sector all the time. We’ve actually had conversations with you guys about these same things already without the microphones. And so when we’re trying to understand how the economy works and we ask a series of questions, so what do you do? Right? What are you, what are you trying to, what are your objectives? Whatcha trying to achieve? And you kind of touched on those.

The other thing we think about, we’re sort of building a model, is like what are the constraints? Like what are the things that prevent you from doing the best. Now, obviously, you know, economists would say we’re always constrained, all of us by some sort of budget constraint. We all have a budget constraint. We’re also always constrained with time. Yeah. Are there any other like relevant constraints that you think that you sort of hit on in your day-to-day job?

Pete Drost: Constraints to? For what exactly?

Todd Kuethe: To to, to reach your objectives?

Kyle Maple: Yeah. Probably the, again, we’ve, we’ve touched on this a little bit, but, but farmland is a niche asset class. Mm-hmm. And, and. Your question really hit on that you’re not selling many times, we’re not selling ourselves just as managers. We’re selling the benefit of farmland as an asset class. Mm-hmm. And, and sometimes how to even appropriately view that asset class.

I think I mentioned earlier, the farmland can be in a bucket called alternative investments. Well, also in that bucket is private equity is considered an alternative investment. Well. If you’re comparing returns from farmland to private equity, w we’re gonna lose, but, but understanding the true risk of farmland as an investment class versus the risk of, of private equity.

Todd Kuethe: So, so private equity being like. I could invest in someone’s startup that they’ve got like an app that they’re gonna do or

Kyle Maple: that, that, yes.

Todd Kuethe: Or some other sort of company or space.

Kyle Maple: Yep. Any, any privately held business that wants capital, Hey, we, we, they would sell a portion of ownership in that business. Right. And, and the private equity can help mm-hmm. Fund it to help it achieve its growth goals. There’s a, there’s inherent risk in that.

Todd Kuethe: Oh, yeah. Yeah.

Kyle Maple: Much more than, than owning a piece of real estate and, and, and farmland. And so, trying to educate on the differences of that. And that’s just one example, but, but, and, and how we compare to bonds and, and why it’s a good thing to have a portion of your portfolio in farmland. How it fits in your, your portfolio Sure. And how you should think about there, there is an education to that.

And again, it’s simply because it’s, it’s in my mind, it’s simply because it’s such a niche asset class that, that really probably, I would say the, the early nineties are really when you started seeing investment ramp up in this asset class.

Todd Kuethe: So if I was thinking about this in terms of building a model, what I would think of that is like one of the constraints is your willingness. So potential clients’ willingness or understanding of investing into this space? Is that a way to sort of characterize that?

Kyle Maple: Yeah. A it’s it’s raising capital.

Todd Kuethe: Yeah, yeah, yeah.

Kyle Maple: Right. Yep,

Chad Fiechter: yep.

Kyle Maple: Yeah. It’s, it’s simply,

Todd Kuethe: Well, and it’s, it’s tricky too in people that raise capital to sort of know what you’re getting. Right. In like Yeah. Particularly like, you know, you mentioned you’ve been in this space for a long time, so there’s now a track record of here’s what we’re we do and here’s how we, yeah, here’s how we operate.

But if we went back, had this conversation 10 years ago. It’s a lot less much of a track record, more of a vision, right?

Kyle Maple: That’s exactly right. Yeah.

Chad Fiechter: Well, it’s kind of like we’re. Nerd alert. Yes. Trying to move the demand curve as opposed to just move on the demand curve, right? Yeah, yeah. Like you’re trying to build, you’re trying to shift that demand curve, right? Using information to say like, Hey, this matters, this, this could be something part of your asset, part of your portfolio.

Kyle Maple: Yeah, and, and you know, we do stress that we, we look at farmland as a part of a portfolio. This is not the, the driver of your portfolio. Again,

Chad Fiechter: Not for me, man. I’m doubling down.

Todd Kuethe: After this conversation,

Chad Fiechter: After this, i’m, yeah. Put it all on farmland.

Kyle Maple: Yeah, that, there you go. I guess we’re doing all right here. Yeah.

Todd Kuethe: One at a time. One at a time. You got Chad.

Kyle Maple: The, the, that, that’s a big part of it though, is, is just, again, it’s, it’s a niche class. Why does it make sense in your portfolio? And, and really again, we look as a part, we look as a good diversification in the portfolio. Less a driver of your portfolio, if that makes sense.

Todd Kuethe: So, so then thinking of this economy then, are you more constraint? Do, do you see more potential investments than you’re actually able to pursue, if that makes sense, right? So if, if you’re constrained by like a budget constraint, right?

Chad Fiechter: Mm-hmm.

Todd Kuethe: Then what we often end up observing is people that say like, well, I would’ve done this had I had additional capital, right? Mm-hmm. Um. Like, is that, is that still a space out there?

Kyle Maple: Yeah, I, you know, we’re, we’re always happy to accept more capital, but I wouldn’t call us capital constrained right now. It’s just finding the right investment opportunities.

Chad Fiechter: Okay. So its, it’s a pricing now.

Todd Kuethe: It’s also, it’s also the limited supply.

Kyle Maple: Yeah, limited supply. And, and look, we’re not, we always say this, we believe, we don’t set any county records with, with pricing. Right? Sure. Our, our, our pricing of an of opportunity is, is based on mathematics and finance and less emotion, right? And so when you pull that out there, we really. I don’t believe we compete with farmers very often.

If, if it’s, if it’s a piece of ground that’s next to ’em and they’re gonna own it, that they, they will own it and we won’t be able to compete on price. So.

Chad Fiechter: Well, I think that’s one of the things I wanted to ask. ’cause that’s, that’s a sensitivity right. In the farm community.

Kyle Maple: Absolutely.

Chad Fiechter: And you guys have touched on this, like you, you’re, you’re looking for long-term sort of relationships with farmers. But there’s a sensitivity to this investors coming into communities, right? That this is the big bad, sort of like they’re coming in and taking away opportunity. And you’re saying we’re, we’re not standing at that public auction sticking the paddle up 10 more times.

Kyle Maple: Yeah. We, we absolutely. I mean, just to hit on that example directly, we, we have bought stuff at auctions, but it’s few and far between. And frankly, we, we, we try to avoid ’em. Sure. And so. Those aren’t areas where we go, we try to find the, the niche opportunities that, that, again, from a mathematics standpoint work for our clients.

And, and so that’s our focus. That that is a big constraint though, because those opportunities are few and far between. And that’s again why we try to go and find these networks that can help us dig those out.

And, and it kind of goes back full circle to the raising of capital. Again, we’re, we’re, we’re always in the business of, of bringing a additional capital to our firm that wants to invest in farmland, but we’re also sensitive to the fact that we don’t wanna be out there buying anything and everything. Right, right. We’re, we’re, if you start doing that, I think you lose your, your. I mean, I, I fear we lose our sense of self of, of how we want to go about this. How we wanna be a prudent investor in this space. So it’s, you don’t wanna flood the marketplace. Again, this is a relative to other asset classes, this is a small, this is a small asset class.

Chad Fiechter: Yeah.

Todd Kuethe: And then the other one that we always sort of ask, right, is like, is there any, has there been some recent changes that maybe have shifted how you view your role in the economy? Or things that maybe you anticipate being on the horizon? Right? So for example, it’d be impossible to have a discussion now, this spring, and not talk about sort of like trade relationships and trade partners.

Kyle Maple: Has something changed there?

Todd Kuethe: Yes, yes, yes. Or at least there, there’s

Chad Fiechter: Something changed during this conversation. Yeah,

Todd Kuethe: Yeah. Probably literal, literally get an alert literally until we,

Chad Fiechter: There’s gonna be a relaxing.

Todd Kuethe: Okay. So yeah. But there is a threat of potential trade relationships. We, but we also just went through Covid, right? Where our whole international shipping stuff has been adjusting how they think about things and markets and, but like, or, or just policies in general. I, I know that. You know, as a financial investment firm, you also have regulatory requirements of things. Mm-hmm That you, activities you can and can’t do, or ways you can frame your poten. Like you can’t take everything that would potentially pop up. Right.

So like has there been any sort of major changes in the last, since you’ve been in this profession that have changed how you think about your business or do your business? Or things that you think like, this is what I’m watching ’cause I think this could change next.

Kyle Maple: Probably the, there’s a couple different paths we could go down here. I, I. I’d start with and, and I feel like we’ve, we’ve been good at this, you know, scrutinizing specifically out west, water resources. And, and understanding, hey, you know, California is a big one. They, in 2014, they, they enacted the Sustainable Groundwater Management Act. Did I say that correctly? That’s amazing.

Pete Drost: Sigma’s. Yeah. I think they call it Sigma.

Kyle Maple: I can’t believe I got that out smoothly.

Todd Kuethe: They call it Sigma.

Pete Drost: Yeah. SGMA.

Todd Kuethe: My kids would love that.

Kyle Maple: But trying to stay on top of those water regulations is important, right? Specifically for the, those, as those farmland out there is reliant on, on consistent and, and sustainable water resources. And so understanding that and, and putting an emphasis on, on understanding that and what, what the future might entail for specific properties and its specific water rights is absolutely important. And, and that’s been a evolving regulation as as we go forward and I think it will continue to evolve.

Probably the other one that, that we’ve noticed, again over my 10 to 12 years in this space, is sustainability is a factor from the, the capital providers. Like, it’s not, I, I don’t wanna say it’s, you know, there’s a balance there, but people wanna understand what’s going on a farm. You know, part of, part of the attraction of, of farmland as an asset class is it’s a tangible asset and it has direct effect effects on the environment and humanity through, through the production of food, fuel, and fiber. Right? So. Telling. I,

I think we’re lucky in this industry. I think everybody in this room would agree that, that we’ve made an incredible strides in how we operate farmland and, and, and produce that food, food, fuel, and fiber. I, I hate saying this ’cause this gets said too much in agriculture, but, but part of our job is, is telling that story of how, how much we’ve changed and, and what our tenants specifically are doing that’s really well, doing really well on our farm, on our clients’ farms, I should say. But also, you know. Uh, probably looking into the future, how do we continue to push that narrative forward? Let’s not stop on the improvements we’ve had now.

And, and we do that a alongside our operators. I, I don’t, we don’t really push anything down. I certainly don’t feel it’s, it’s continual growth by them. Tillage practice is a big one, right? Mm-hmm. I, I can remember having, having multiple moldboard plows as a kid. Those are as much scrap metal as they are anything at this point. So we, we, we continue to push that envelope. Where there’s a lot of no-till going down and even the tillage that does happen, it’s vertical tillage or strip tilling. And it’s, it’s just has a lot less disturbance on the soil. People would be surprised how much of that is actually going on on farmlands, on farms right now versus what’s kind of stated out there?

Todd Kuethe: I think one of the ways our, like professional lives probably overlap as professors and, and people that work in this investment space is like we spend about as much time talking to people sort of of core and inside the ag sector, as we do people completely outside of it, right? Mm-hmm. And so some of that times, like, there are people that are still amazed at like the technology use of farms. Yeah. Right? And they, and they sort of think about like Tom Joe or their grandpas or like, you know, like a farm all tractor being a huge innovation sort of thing, right?

Chad Fiechter: Yeah. And then you get into new pair of overalls.

Todd Kuethe: Yeah. And you get into the world of like, no, we’re talking about robots and we’re talking about drones. And right, like, I, I, I think sort of the. In, in some ways there, there are, my perception, people that are sort of resistance to sort of tell that like, no, we’re a high tech investment like, or high tech, you know, industry doing these sort of things. ‘Cause there are times it’s beneficial to sort of point to like, no, we’re just like people with a dream, you know, living on the soil like a, like a, like a hundred years ago, but like they’re sort of both true.

Chad Fiechter: Mm-hmm.

Todd Kuethe: Right. And like how you can communicate. Sometimes it’s a matter of taking that, that group that’s sort of from the outside and exposing them to the inside. But also the people that are like sort of inside of exposing to the outside like, well, no, here’s also what their constrain, this is like what we asked these economists questions. Like, here’s what they’re trying to achieve, here’s what their constraints are, and you can kind of understand a little bit more how these things fit together. Right.

Kyle Maple: Yeah, that’s a really good example. I, I do think, again, that’s where I hope our group brings value to both sides of the equation. Even our tenant farmers, I, I, I think the fact we talk about what, what people who are interested in agriculture, ’cause they’re, they’re wanting to invest in it, but, but probably don’t touch it and feel it every day. Right? They, they understanding the questions that, that we are, are getting asked and, and communicating those and trying to help develop the right response. And, and, and I think there’s value to them to, to see, hey, where, where, where’s this world going from a capital perspective where, where, where, what’s, what’s interesting to them? Should I shift how I think about my operation in this, in this capacity? You’re right. We probably. Play a little bit of a similar role in, in those conversations.

Chad Fiechter: I, I got a question. ‘Cause this, this comes up and I would, I’m, I’ve never asked either of you this, but when Dow spun out, Corteva, there was a lot of conversation around, there was investors who were wanting more exposure to production ag. And so it was like, when they first started, they were gonna release the stock. There was a, this big pop of interest in like, how do we gain as investors to production agriculture.

Do, do you feel like there’s also a part of that in your investors that they, they want to get closer to sort of the farm and, and sort of the, the market dynamics that happen there? Or is that really not something that you’ve encounter?

Kyle Maple: I think that’s an investor by investor basis. We, one of our, actually our first clients was a, a state teacher pension fund. That, that the director of that, he loved agriculture. He would drive up in an, in an rv or no, I’m sorry. It was a, it was a, it was like a, on the back of a pickup. But he had a sleeper on the back of the, the camper shell on top and would come tour the farms.

Chad Fiechter: Seriously.

Kyle Maple: And, I only use that story because I mean, that shows how much he, like he loved this space, right? He loved this space, and so I, it’s an investor by investor basis. Okay. It’s like some of them look at it admittedly as, Hey, what, what’s the returns? What’s the risk? What’s the variability in, in these returns? And, and it’s a numbers game. Sure.

Some of them look at very much as, Hey, I, I love the fact I can touch and feel this. I love the fact that you can tell me. How we are improving the environment through, through this asset class.

Chad Fiechter: What’s the weirdest crop that you’ve ever had to evaluate as a potential expansion?

Pete Drost: I don’t know if it’s weirdest, but I’d probably, yeah. Chestnuts was nuts. Was a unique one.

Chad Fiechter: Chestnuts? Huh?.

Pete Drost: .

Unique.

Todd Kuethe: I’ve not thought about chestnuts as a as a crop.

Chad Fiechter: Well, can you, you, you actually explained to me that you, you eat chestnuts, like that’s what you’re supposed to do with them, right?

Pete Drost: Yeah. And I don’t know anybody who eats chestnut, which is part of

Chad Fiechter: Yeah. But like that was

Todd Kuethe: Nat King Cole at least. At least enjoys the smell of them roasting by an open fire. Yeah. But he didn’t say anybody eating ’em. So I don’t know if he eat that.

Chad Fiechter: That’s true.

Pete Drost: Did not taste, they taste kinda like a buttered potato, almost.

Chad Fiechter: Like, wait, the butter?

Pete Drost: You don’t have to put butter on ’em to get the butter flavor.

Todd Kuethe: Wow.

Pete Drost: It’s baked in there.

Todd Kuethe: I love,

Kyle Maple: I actually, ’cause yeah, we, we explored this a little bit and so I went and bought a pack and you can find ’em in your local grocer.

Chad Fiechter: Oh, you can?

Kyle Maple: Yes. Yeah, yeah. Typically around Christmas high, and I assume you score,

Todd Kuethe: And I assume you roast them either by an open fire or

Pete Drost: microwave or a

Kyle Maple: toaster oven

Todd Kuethe: or, or a closed fire.

Chad Fiechter: Oh, okay.

Pete Drost: Oh, did you do, yeah. It wasn’t a microwave, right?

Kyle Maple: It was a toaster oven.

Chad Fiechter: Can you give me like, how large are chestnuts?

Kyle Maple: Yeah, they, they’re bigger than a quarter, probably about smaller than a half dollar.

Pete Drost: I’d say, yeah.

Chad Fiechter: Do you eat the whole thing

Todd Kuethe: And is it, is it like one big,

Pete Drost: It’s like a third of the,

Todd Kuethe: Is like a, is it like a Brazil nut where it’s a giant one thing? Or is it like a walnut where there’s like pieces within it?

Pete Drost: Oh no, it’s, it’s like

Chad Fiechter: I think you’re forcing ’em into nut category too much.

Todd Kuethe: I know this is turning into a nut podcast, which didn’t, you brought it up. You introduced the nuts. Oh. If you ask follow ups, and now I wanna know. Okay. ’cause when Pete said they taste like a buttered potato. Yeah. If you’d said like, what’s your favorite food number? One’s bread. Number two might be buttery potatoes.

Pete Drost: They can use chestnut for, like, one of their big uses is gluten-free flour. Oh, and what was the other? Yeah, so it’s, it’s different from a lot of other nuts that like, it’s, it’s like a carbohydrate, I think it’s less of an oil than, than like an almond or something.

Chad Fiechter: How, how did you find them? I mean, delicious?

Kyle Maple: I mean, when you say butter potato, I, I couldn’t agree more. That’s what it tastes like.

Chad Fiechter: Yeah. Wow.

Kyle Maple: And so it’s unlike any net you’ve had. Yeah. And, and if you roast it and it’s warm, it’s not bad. I, I didn’t mind it.

Todd Kuethe: We like to end with a lightning round.

Kyle Maple: Okay.

Todd Kuethe: Okay. So the way a lightning round works is you have to give quick answers. You guys are good at giving very long,

Kyle Maple: Drawn out thought answers.

Todd Kuethe: So we need just a quick one. Okay. Okay. So the first lightning round question is if you had access to a time machine. You could only use it for work purposes. This is not a time machine for leisure.

Chad Fiechter: Mm-hmm.

Todd Kuethe: And it’s, you’re gonna use it to get better at your job. When are you going?

Pete Drost: I’d probably say early 1900’s. And California.

Todd Kuethe: Oh see, what are you doing? What are you, what are you doing? What are you, why are you, why are you going early 1900’s California?

Pete Drost: I just wanna see them, you know, hash out all the water rights and making the world out out there.

Todd Kuethe: Alright.

Pete Drost: That exist today.

Kyle Maple: I hadn’t been, be a lot simpler. I’d go 2002 and the corn belt and pre RFS standard.

Chad Fiechter: Yeah. Yeah. Okay. Buy a bunch of farmland.

Kyle Maple: Yeah, yeah, yeah,

Todd Kuethe: Yeah. Um. If you had a magic wand, similarly at your office, you can use for work and you can use it to gain a piece of information or knowledge that you don’t currently have, what would you use it to? To learn?

Pete Drost: I’d probably, I don’t know. I’d use it just to, yeah, I keep talking about water, but like if you could physically see in the ground exactly how everything’s actually looking. I think that’d be really important.

Todd Kuethe: Un underground water vision.

Pete Drost: Yeah, yeah, yeah.

Todd Kuethe: That’s a good one.

Chad Fiechter: I, I like the, I like the water. That’s, that’s good.

Kyle Maple: You, and I’ll say, understand Trump’s the president Trump’s long-term goals here.

Chad Fiechter: Oh yeah. That’s good. That’s,

Todd Kuethe: Yeah. Just, or just really virtually any politician. I mean that

Kyle Maple: No, you’re right, you’re right.

Todd Kuethe: Trump is the obvious one because it, it feels in real time ’cause he is the president.

Kyle Maple: He’s, yeah. Recently. Yeah. But any, that’s a good point.

Todd Kuethe: Override, but like. But if you could just observe true political goals and intentions. Yeah. Of any like That’s a great magic wand. You could sell that one for a lot of money. Oh yeah. Oh yeah. True. Get outta farmland.

Let’s do one more. The last time you had trouble sleeping ’cause you were thinking about something from work. What were you thinking about?

Pete Drost: Oh, how to start with me? We’re looking at you. Yeah. I don’t know. I don’t, I’m not very good at public speaking, so I’d say the last time I had to like give a presentation or something, I just lay awake thinking about it probably.

Kyle Maple: Mm, okay. I, you know, probably my, I struggle with delivering bad news and that probably is something I, I would, if, if I had to guess the last time I did it, it’d be something like that knowing I had some bad news to deliver.

Todd Kuethe: That’s good. That’s good.

Chad Fiechter: Oh man.

Hey everybody, this is Chad. Todd was a little busy, so I’m doing the outro here. I hope you enjoyed that conversation we just had with Pete and Kyle. We did, we learned a lot. One thing that I really liked is when they talked about.

Farmland investing.

If you enjoyed this podcast, please

Todd Kuethe: like and subscribe and we will be back in another month with a new, uh, conversation. We look forward to having you join us then.