While founder of ag-focused money manager, Colvin & Co., says farmland is the best long-term agriculture play, grain-driven ETFs are filling an important need.
[This interview previously appeared on HardAssetsInvestor.com and is republished here with permission.]
Greyson Colvin is the founder and president of Colvin & Co. LLP, an agriculture-focused investment manager. The firm, with offices in New York and Anoka, Minn., is the general partner of two farmland funds and also manages separate accounts for individuals and institutions. Colvin and his management team’s family have owned and managed farmland for more than 120 years. HAI Managing Editor Drew Voros spoke with Colvin recently from his New York office about this year’s crumbling corn crop, how farmland has outperformed the S&P 500 the last decade, and how the Teucrium Corn Fund (NYSEArca: CORN) is filling an investment void.
Hard Assets Investor: Could you give us your take on where the harvest is now that we’re at halftime, so to speak?
Greyson Colvin: We were actually very surprised by the large reduction in the corn yield by 20 points in the USDA’s last crop report. Typically the USDA is slow to move and to make reductions. That caught us a little off guard. But they did decrease substantially more than we expected, by more than 1 million bushels.
We’re certainly at an interesting point right now. We’ve seen some substantial degradation in corn-crop quality across the U.S. We’ve seen reports of farmers in Illinois and Indiana abandoning up to 25 percent of their crop. The remaining is going through the crucial pollination stage right now, and they’re worried that the ears are really never going to develop, or get to their full maturity.
In southern Minnesota and Iowa, the drops are looking a little bit better. But there are still going to be decreases in yields from the prior year. But really, we don’t expect to see any improvement from where the USDA data are today. We think that there could be some rains and things may hold constant. There certainly is an opportunity for this to get much, much worse.
Champaign, Ill., one of the best farming areas in the U.S., hasn’t received rain for 24 consecutive days. And if they don’t receive rain in the next week or two, their crop yields could go to zero very easily.
HAI: You mentioned the USDA might have been too aggressive on this crop report. As I recall last summer, the USDA was criticized for being less aggressive and maybe too bullish. Could this year’s July crop report be a little bit of an overreaction to the criticism they received from last year?
Colvin: Yes, I think you’re right. And the thing that we always caution people is that the USDA numbers are always best-case scenario. They’re giving you the data assuming that everything in their thesis and expectations plays out perfectly for the remainder of the year. So there really isn’t a ton of upside. And just in the past few years there’s been a real loss in the quality of the USDA numbers, or at least the confidence in them. So I think the USDA did want to come out and make a big shot across the bow and say, “Hey look, we’re paying attention. We see this just as bad as you do.”
You have to understand, too, that the USDA is a government agency that is incentivized as much as possible to keep commodity prices in check.