Hancock
Agricultural
Investment
Group
Farmland Investor
Volume 13, Number 2
Fall 2005
HAIG Investment Strategy Benefits Clients
by Targeting Location and Scale
T he Hancock Agricultural Investment Group’s institutional farmland
acquisition and management strategies have always focused on the
states and counties in each agricultural region that have historically
demonstrated productivity advantages. HAIG clients also benefit from
the Group’s ability to leverage scale advantages within targeted
commodity groups and regions. As the Group’s assets under management have grown, the benefits of scale have become more evident.
Contents
HAIG Investment Strategy
Benefits Clients by Targeting
Location and Scale . . . . . . . . . . 1
Diamond Walnut IPO Boosts
HAIG Client Returns . . . . . . . . . 3
HAIG Welcomes Two
New Employees . . . . . . . . . . . 4
With many times the number
of acres as the “average” U.S.
producer of key permanent
crops (perennial crops grown
on a tree or vine), and a position among the top five
producers in a number of
industries (Figure 1), HAIG
maintains an important scale
advantage for its clients.
HAIG’s thousands of acres of
permanent cropland under
management in California,
Washington, Wisconsin and
Australia enable it to obtain
very competitive volume
pricing on all types of crop
inputs — from fertilizer to
tractors. HAIG’s clients also
benefit from consistent
management practices delivered across all properties
through a geographically
diverse network of farm
Figure 1 - HAIG’s Scale Advantage in Key Commodities
Almonds
U.S. Average
Acres/
Producer 1
HAIG
Acres
6/30/05
HAIG Size
Versus
Average
HAIG
Position in
Industry 2
79
7,847
99 X
4
40 (Washington)
2,323
58 X
12
Cranberries
32
1,048
33 X
2
Pistachios
126
2,506
20 X
3
37
2,164
58 X
2
53 (Australia)
959
18 X
4
Apples
Walnuts
Macadamias
California Total Acres
26,700,000
19,992
U.S. Total Acres
936,600,000
98,614
1
USDA, NASS 2004;Almonds,Walnuts, Cranberries, Pistachios: USDA,AMS;Apples: USDA;
Macadamias: Horticulture Australia Statistics Handbook
2
Western Fruit Grower Magazine,“Top Nut Growers” and “Top Fruit Growers” 2003;
HAIG estimates
managers, with centralized
management oversight.
Equipment costs are also
spread across more acres,
reducing the cost per acre.
Figure 2 shows HAIG’s
cost per unit advantage in
percentage terms for five U.S.
permanent crops relative to
U.S. averages for the same
crops. HAIG demonstrates a
significant cost advantage
over the period in four of
the five crops shown. For
Continued on page 2
HAIG Investment Strategy Benefits Clients by Targeting Location and Scale
On the revenue side of the
equation, consistent application of management practices
tends to lead to higher yields.
HAIG also leverages its ability
to deliver larger volumes of
permanent crops to obtain
crop price premiums and
quality incentive payments
from crop processors /
marketers. Figure 3 shows
the impact of higher yields
and prices on HAIG average
revenue per acre. Compared
to USDA averages for each
crop, HAIG has a distinct
advantage on a percentage
basis. For example, HAIG has
historically been able to
generate 46% more revenue
per acre of walnuts than the
industry.
50%
42%
40%
HAIG Advantage
Higher revenue per acre
Figure 2 - HAIG’s Cost Advantage
30%
24%
22%
19%
20%
10%
2%
0
Almonds
(pound)
Apples
(bin)
Cranberries
(barrel)
Pistachios
(pound)
Walnuts
(pound)
Commodity (unit)
Sources: HAIG and 2002-2004 average cost data from University of California at Davis,
Washington State University Extension, University of Wisconsin Extension.
Excludes properties under development. Past performance is no guarantee of future results.
Figure 3 - HAIG’s Revenue Advantage
50%
46%
40%
HAIG Advantage
example, HAIG has historically produced almonds at a
cost per pound that is 24%
less than the U.S. industry
average.
Continued from page 1
29%
30%
27%
20%
12%
12%
10%
Lower “break-even” price
benefits clients during times
of cyclical low prices
In cyclical, permanent crop
investments such as nut
crops, the value of scale
advantages is most important
during periods of reduced
demand and price weakness.
During times like the
present, where crop prices
are high due to strong global
demand, both small and
large operations, with both
2
0
Almonds
Apples
Cranberries
Pistachios
Walnuts
Commodity
Sources: HAIG and USDA 2002-2004 average data.Apples assume 78% packout.
Excludes properties under development. Past performance is no guarantee of future results.
efficient and inefficient
operators, make money
(with the efficient ones
making relatively more
money). Land values typically
increase, and interest in
expanding acreage runs high
in farming communities.
Historically, however, once
crop acreage has expanded
sufficiently to meet demand
and/or global demand
weakens due to some
external force, crop prices
Figure 4 - HAIG’s Investment
Performance
Advantage – Almonds
NOI/Acre
USDA 3-Year Average
$1,222
HAIG 3-Year Average
$1,883
HAIG Advantage
54%
Sources: HAIG and USDA 2002-2004 average
data. Past performance is no guarantee of
future results.
and land values typically
begin to fall, changing the
economics. At this point in
the cycle,“break-even” crop
“ HAIG’s thousands of acres of
Over the period shown,
HAIG has demonstrated a
significant advantage over
the USDA average.
Due to the advantages
mentioned earlier, HAIG’s
scale allows for profit potential even when industry
crop prices are low. In fact,
assuming $0.90 almond price
per pound, almond orchard
market value of $9,000 per
acre and the historical costs
and yields reflected in Figure
4, HAIG return potential, as
measured by NOI, is 5.14%
of market value, versus 0%
at industry averages.3
permanent cropland under
management in California,
Washington, Wisconsin and
Australia enable it to obtain
very competitive volume
pricing on all types of crop
inputs — from fertilizer to
tractors.”
price becomes an important
measure of efficiency. The
lower the break-even crop
price, the more resilient the
operation and the higher
return for the client over the
long term.
Scale advantages improve
profitability
When USDA and HAIG
average almond net operating
income (NOI) per acre are
compared (Figure 4), HAIG’s
NOI per acre is 54% higher.
Scale enables operators
to beat averages
Only through scale
economies can farmland
operators consistently beat
the industry averages. HAIG’s
position among the largest
farmland operators enables it
to provide cost savings and
production advantages for its
clients that carry through to
the bottom line. Historically,
HAIG’s average cost and
revenue per acre have beaten
industry averages, during all
phases of commodity cycles,
in both high and low crop
price environments, resulting
in consistently competitive
client returns.
Diamond Walnut IPO Boosts
HAIG Client Returns
A s part of the July 20, 2005 Diamond
®
O F
C A L I F O R N I A
Foods, Inc. (“Diamond Foods”) initial public
offering, HAIG clients received a total of
$4.1 million in cash and common stock.
Prior to the IPO, Diamond Foods was a wholly-owned
subsidiary of the agricultural cooperative Diamond Walnut
Growers, Inc. (“Diamond Growers”). In connection with
Diamond Foods’ IPO of 6,000,000 shares of common stock
at a price of $17.00 per share, these two Diamond entities
merged, effectively converting the company from a
California agricultural cooperative association to a
Delaware corporation.
The conversion allowed Diamond grower members to
convert their coop position to cash or shares of Diamond
Foods common stock. Based on HAIG’s delivery of walnuts
from client properties to Diamond Growers over the past
few years, several HAIG clients were eligible to receive
cash and/or shares of the new entity. The number of
shares/dollars allocated was based on a formula that
reflected each property’s two best years out of the last
six in terms of pounds of walnuts delivered to Diamond
Growers. Diamond grower-members in aggregate received
8,060,207 total shares of Diamond Foods common stock.
Together, the aggregate value to grower-members for the
shares and cash paid in the conversion was $154.3 million.
Diamond processes, markets and distributes a variety of
nut crops under the Diamond of California® and Emerald
of California® brands.
3 NOI
calculated as yield * price per lb. / cost
per acre. Past performance is no guarantee
of future results.
www.diamondwalnut.com/about.asp
3
HAIG Welcomes Two New Employees
Jacki Zommers recently
joined HAIG as assistant
controller. In this role,
she is responsible for
quarterly financial statement preparation for HAIG
clients and other general
accounting responsibilities.
Ms. Zommers brings to HAIG extensive
broad-based accounting experience and
experience in financial system conversion.
Prior to joining HAIG, she was general
ledger manager at State Street Research
and Management. She also served as Vice
President of operations and finance for a
local publishing company. Ms. Zommers
holds a BA in mathematics from Tufts
University, an accounting certificate from
Bentley College and an MBA with concentration in MIS from Bentley.
Stephen Kenney has joined
HAIG as investment
analyst. Mr. Kenney assists
with portfolio management and investment
analysis for Hancock’s
institutional farmland
investment program.
Prior to joining HAIG, Mr. Kenney was a
business analyst for Investors Bank & Trust,
responsible for credit risk management.
Prior to that, he held various positions with
Morgan Stanley and Wells Fargo. He holds
a BS in Finance from Iowa State University
and is currently pursuing his Masters in
Finance. Mr. Kenney was raised on a grain
and livestock farm in Iowa.
..........................................................................................
Hancock Natural Resource Group
99 High Street
26th Floor
Boston, MA 02110-2320
Hancock Agricultural Investment
Group is a division of Hancock
Natural Resource Group, Inc.,
a registered investment adviser
and wholly-owned subsidiary
of Manulife Financial Corp.
Farmland Investor is published
by Hancock Natural Resource
Group, Inc., Boston, MA, for
the institutional investment
community. It is distributed
with the understanding that
Hancock Natural Resource
Group, Inc. is not rendering
legal, accounting or other
professional services.
For further information on
any of the topics covered in
Farmland Investor, contact
Jeffrey A. Conrad, CFA, HAIG
President at (617) 747-1601
or visit our web site at
www.haig.com.
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