Oct 14, 2019 · 41m · capital-allocators
Jay Girotto – Farmland Opportunity (First Meeting, EP.10)
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of Capital Allocators, Ted Seides interviews Jay Girotto, founder of Farmland Opportunity, exploring how institutional capital can access high-quality U.S. row crop farmland through disciplined off-market sourcing, tenant operator partnerships, and aligned separately managed account structures.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ted holds 26% of the talking time here. How this is scored →
Ted as informed peer 3.6 Guest teaching 4.8 Guest disagreement 1.1 Ted pushing back 0.8
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 35:05 Jay rejects mid-teen farmland return claims
Jay forcefully dismisses industry peers marketing mid-teen farmland returns, calling them unrealistic and stressing that long-term land returns are fundamentally high single digits.
Hardest push from Ted ▶ 17:35 Ted challenges 4% cash yield thesisTed pushes back on the initial investment appeal, challenging why institutional investors would be excited by a modest 4% net cash return.
Biggest teaching moment ▶ 15:10 Jay explains agricultural cash accounting distortionsJay educates Ted on why analyzing a farmer's balance sheet or income statement is unhelpful due to cash accounting flexibilities, explaining their alternative debt-to-owned-acre metric.
Ted holds their own ▶ 18:56 Ted synthesizes total return equationTed quickly synthesizes the component returns of cash yield, inflation, and productivity gains to calculate the double-digit gross profile.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Capital Allocators Platform Announcements | 2 | 2 | 0 | 0 | Ted opens with standard platform announcements and asks Jay about his background. Jay comfortably shares his personal history transitioning from Harvard Business School and tech startups into farmland management. | |
| Founding Farmland Opportunity and Asset Resilience | 3 | 5 | 1 | 1 | Ted gently teases the connection between HBS and farmland before asking about economic fundamentals. Jay educates Ted on the extreme fragmentation of Midwest farmland stemming from the Homestead Act and non-economic seller motivations. | |
| Assessing Soil Quality and Agricultural Diligence | 4 | 6 | 1 | 1 | Ted probes into what differentiates good soil and how operators are assessed. Jay details precision agriculture, county T crop insurance metrics, and explains why traditional financial statements are misleading in cash-accounting farming. | |
| Underwriting Cash Yields, Management Fees, and Net Returns | 5 | 5 | 2 | 2 | Ted pushes on how base yields translate to attractive returns for institutional investors. Jay reframes the thesis around long-term land appreciation and inflation hedging alongside net cash yields. | |
| Value-Add Improvements and Core Midwestern Footprint | 4 | 6 | 1 | 1 | Ted questions investing in Northern Minnesota given the harsh climate. Jay explains how climate change trends and hybrid seed developments create regional arbitrage opportunities in both Minnesota and the Palouse. | |
| Ridgeline Sponsor Advertisement | 3 | 4 | 0 | 0 | Following the mid-roll sponsor break, Ted asks how Farmland Opportunity penetrated a culturally insular market. Jay describes their organic regional expansion through operator relationships and local estate attorneys. | |
| Macroeconomic Risks in Farmland Investing | 4 | 5 | 1 | 1 | Ted inquires about regulatory burdens and the trade war's effect on crop pricing. Jay provides detailed context on WOTUS water regulations and the severe exposure of US soybean markets compared to domestic corn. | |
| Advantages of Separately Managed Accounts over Commingled Funds | 4 | 5 | 2 | 1 | Ted asks why Jay chose separate accounts over pooled funds and inquires about operational longevity. Jay argues commingled funds create artificial exit valuations and structural misalignment for long-duration real assets. | |
| Evaluating Public REITs vs. Private SMA Strategy | 4 | 5 | 1 | 1 | Ted asks whether Jay has considered turning the vehicle into a public REIT or launching an agtech venture fund. Jay explains how institutional and REIT labels undermine local deal sourcing advantages. | |
| Exit Strategies and Transaction Timing | 4 | 6 | 2 | 1 | Ted asks how to diligence farmland managers. Jay directly refutes promises of mid-teen returns, noting that long-term land ownership cannot be timed and that unrealistic return targets indicate bad underwriting. | |
| Market Competition and Forward Outlook | 3 | 4 | 1 | 0 | Ted asks about competitive dynamics and future outlook. Jay notes institutional capital is a rounding error compared to farmer buyers and identifies Chinese trade decoupling as the primary long-term risk. |
Statements from this episode (28)
Girotto: HBS Class of 1999 Sent More Graduates to SF Than NYC
“I think we were, 99 was the only class of Harvard graduates that sent more people to San Francisco than New York City, which was a leading indicator of what was going to happen, and it did happen a year later.”
Girotto: Farmland Values Dropped Only 4% in the 2008 Financial Crisis
“In the financial crisis, overall USDA, US farmland values went down about four percent. There was no interruption of the annual cash revenue streams that were coming out, so basically it was flat zero. Because it's the only asset class along with cash that did…”
Girotto: Iowa farmland remains fragmented among over 3,000 owners per county
“So you'll even go into a state like Iowa now, you know, has 99 counties. One of those counties will have around 300,000 acres of tillable or plantable farmland. And look in the plat book, which is basically the phone directory for land, and in there you'll fin…”
Girotto: Midwest farmland management is primarily about excess water drainage
“So most of farms in the Midwest, we focus primarily on non-irrigated farms. Are about managing too much water, not managing too little water.”
Girotto: Farmland Opportunity rejects farms behind Missouri or Mississippi levees
“We don't buy farms even if they're cheap, and it's the greatest farm in the world, and it sits behind a levee on either the Missouri or the Mississippi River.”
Girotto: US cropland average cash yield is around 3%
“So it's in the low threes, three percent today. So if you look at just the USDA average cropland rental rate in the US divided by average cropland value, it's come down to about three percent.”
Girotto: Cash accounting makes farmer income statements unreliable for financial due diligence
“Well, you know, farming is one of the last cash accounting businesses in America, right? And so it is very easy for a farmer to look profitable or unprofitable depending on what it is they want to talk about that day, whether it's taxes or renting a new farm.”
Girotto Achieves 4% Net Cash Yields via Value-Add Farmland Acquisitions
“Our historic returns actually are at four percent because we are buying at a discount to the market rate, as well as we're using an operator that's getting 20% higher crop yields and can pay more in terms of cash rents. So our underwriting number is net of fee…”
Girotto: Farmland Opportunity charges 20% fee on gross farm revenue
“Our management fee, we basically take 20% of the gross revenue off of the farm. So that's Any lease revenue, that's primarily farming, but it could be windmills and, you know, various other things. So our gross cash yield rates are around five percent. So we'r…”
Farmland Opportunity takes no carry on land appreciation or farm sales
“There is no carry on the actual sale of the farm, and there's no carry at some artificial Based on a third party mark to market that no one can believe, right? We do a mark to market on a yearly basis. Every three to four years, there's an external third party…”
Girotto: Farmland historically appreciates 6% annually from inflation and yield gains
“Historically, that has been around six percent. Half of that is inflation. This is a Very good inflation hedge. Soybeans go into like 3000 products, including the pen you're holding right there. I mean, it goes into everything. It is an inflation hedge, tracks…”
Girotto: Farmland Opportunity Avoids Illinois, Indiana, and Ohio for Lack of Value
“And core U.S. Farmland stretches further afield in that way into Illinois, Indiana, Ohio. We don't go there because we don't see any relative value in terms of the farmland there, and we don't have the inside connections.”
Girotto: Northern Minnesota Shifts from Barley to Higher-Yielding Corn-Soybean Rotations
“We were there because of the long-term global warming trend that we see, and that's traditionally been a small grains world, like barley, sometimes soybeans, and it's with the different shorter duration hybrids for things like corn, You're able to actually get…”
Girotto: Palouse farmland yields double US wheat average at 40% premium
“Produces twice the US average. So US average wheat yields around 46, 47 bushels pretty consistently. You know, you'll even see those crop insurance T yields around 85 out there. And the price of the land is only 40% higher than if you're buying wheat farms on …”
Girotto: Institutional farmland entry will price out the Palouse arbitrage
“And so we think that that's a long term arbitrage that will get priced out as more and more professional investors or investors get into buying farmland.”
Girotto: Deflationary economic environment would be very bad for farmland
“One is that the United States or may globally gets into a deflationary environment. That'd be very bad for farmland.”
Girotto: High inflation with high interest rates works well for farmland
“If you do have a high inflationary environment with high interest rates, that works well for Farman. That's the 19 seventies for Farman.”
Girotto: Farm incomes dropped 50% after 2013 market peak
“So the commodities markets, as well as the land market, peaked basically in Q-two of 20 13. Since then, we've seen farm incomes come down by about 50%.”
Girotto: US exports 10% of corn versus 50% of soybeans
“The US corn market is mostly domestic. It's only about 10% exported, but the soybean market is almost 50% exported.”
Girotto: Pricing Commingled Fund Exits Without Asset Sales Is a Huge Risk
“I'm sure it's written down in the private placement memorandum, but unless you're actually selling assets in order to determine those exit and entry prices, that's a huge risk.”
Girotto: Deploying $250M in Farmland Yearly Requires Paying Market Prices
“But if somebody showed up and said, I want to buy two hundred fifty million dollars of farmland this year, the only way to do that would be to get large transactions and pay market prices to even attempt to do that even if you could execute it.”
Girotto: Buying farmland as perceived individuals yields discounts public REITs lose
“We're buying for what is perceived as an individual or an individual entity rather than buying for a fund or a publicly traded REIT or anything along those lines. And we think that that gives us a great advantage or our clients a great advantage in order to ge…”
Girotto: Best Farmland Exits Pit Rival Farmers Against 1031 Exchange Buyers
“The exit is you want to be selling in a market that Farm incomes are flush and commodity prices are high is what you want to wait for, especially if you have the ability to wait for that. And then you want to do a public auction. You want to get the local farm…”
Girotto: Mid-Teen Return Projections for Farmland Are Unrealistic
“There are people in space to talk about at least mid teen returns, right on farmland. That's just not reality. We talk about high single digits in terms of returns”
Girotto: Over 80% of Target Farmland Is Purchased by Farmers
“80% plus of the land are bought by farmers. We don't see a lot of competition from other farmland investment funds.”
Girotto: Institutional Farmland Ownership Is a Rounding Error in $2T Market
“The size of the market is about two trillion in farmland value in the U.S., and there are two publicly traded REITs in the space, and they each own around or less than a billion in farmland. Your largest institutional investor is TIA Cref in the US. They own m…”
Girotto: Losing China as a Trade Partner Is the Biggest Farmland Risk
“The biggest concern certainly is that in some way through this whole thing with China, that China would truly go away as an agricultural trading partner somehow. I think that's probably the biggest overall risk. The other macro risks that I mentioned around in…”
Girotto: Manager bonuses steer endowments away from long-term assets like farmland
“I think a lot of that disconnect comes by creating financial incentives, you know, bonuses and things like that for the investment manager that actually steer them away from things that the client should actually be investing in. And I see that often in farmla…”