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CAIA > CAIA - 20 - Farmland and Timber Investments > Flashcards

CAIA - 20 - Farmland and Timber Investments Flashcards

1
Q

There are 3 primary motivations for adding farmland investments:

  1. ___ ___
  2. ___
  3. Increase in value due to ___
A

There are 3 primary motivations for adding farmland investments:

  1. Inflation hedge
  2. Diversification
  3. Increase in value due to shortage
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2
Q

Farmland has an ___ supply, so higher prices result in ___increases in supply.

A

Farmland has an inelastic supply, so higher prices result in marginal increases in supply.

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3
Q

Farmland returns are not typically linked to financial market returns because it is ___ ___, ___and generally ___.

A

Farmland returns are not typically linked to financial market returns because it is privately held, subsidized and generally unlevered.

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4
Q

___ data is available about farmland in the U.S. than other countries.

A

More data is available about farmland in the U.S. than other countries.

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5
Q

___ institutional investment is made in European farmland.

A

Little institutional investment is made in European farmland.

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6
Q

Investment in global farmland are exposed to the following risks:

  1. ___
  2. Integration of ___and ___markets.
A

Investment in global farmland are exposed to the following risks:

  1. Expropriation
  2. Integration of agricultural and energy markets.
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7
Q

Over the past decades, farmland returns have ___ and timberland returns have ___.

A

Over the past decades, farmland returns have increased and timberland returns have decreased.

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8
Q

Three macro factors are driving the growth in demand for agricultural products:

  1. Global ___ growth
  2. Rising ___
  3. Increased ___-___uses
A

Three macro factors are driving the growth in demand for agricultural products:

  1. Global population growth
  2. Rising incomes
  3. Increased non-food uses
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9
Q

Growing demand for agricultural products needs to be met by an increased supply of:

  1. Agricultural ___
  2. Agricultural ___
  3. ___
A

Growing demand for agricultural products needs to be met by an increased supply of:

  1. Agricultural yields
  2. Agricultural infrastructure
  3. Land
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10
Q

In ___ and ___Asia, meat consumption is expected to rise, while consumption changes in ___Asia are less certain.

A

In east and southeast Asia, meat consumption is expected to rise, while consumption changes in South Asia are less certain.

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11
Q

Commonly grown products for biofuels include ___, ___oil, ___ and ___.

A

Commonly grown products for biofuels include sugarcane, rapeseed oil, corn and soybeans.

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12
Q

Production of biofuels from non-food agricultural products (has/has not) been successful.

A

Production of biofuels from non-food agricultural products has not been successful.

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13
Q

The key driver of biofuel demand has been ___ ___ ___.

A

The key driver of biofuel demand has been U.S. government policy.

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14
Q

Higher domestic consumption of corn has resulted in an increase in transportation by ___ and containerizationn of ___ ___ ___, which is a byproduct of ethanol production.

A

Higher domestic consumption of corn has resulted in an increase in transportation by rail and containerization of dried distillers grains, which is a byproduct of ethanol production.

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15
Q

There are 3 ways to make non-operating investments in agriculture:

  1. ___ farmland
  2. Owning ___ ___in agricultural firms
  3. Buying ___or ___
A

There are 3 ways to make non-operating investments in agriculture:

  1. Leasing farmland
  2. Owning listed equities in agricultural firms
  3. Buying futures or derivatives
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16
Q

Owning farmland for lease income has the following advantages:

  1. Economic benefit from ___-___technologies
  2. Insulation from ___risks
  3. ___benefits
A

Owning farmland for lease income has the following advantages:

  1. Economic benefit from yield-enhancing technologies
  2. Insulation from counterparty risks
  3. Diversification benefits
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17
Q

The best agricultural equity index is a ___-term, ___-weighted index constructed by ___ ___.

A

The best agricultural equity index is a long-term, value-weighted index constructed by Ken French.

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18
Q

Agricultural futures are typically accessed through ___-___products.

A

Agricultural futures are typically accessed through index-based products.

19
Q

What is the equation for crop yield?

A

Y = S x I x E x H

S = Solar radioation

I = Amount solar captured by crop

E = Crop’s photosynthetic efficiency

H = Harvest index (% of harvest-able dry matter)

20
Q

Growth in agricultural yields, particularly in developed countries, is due to four key factors:

  1. Improved ___
  2. Improved ___
  3. Increasing use of ___
  4. Increasing use of ___ ___
A

Growth in agricultural yields, particularly in developed countries, is due to four key factors:

  1. Improved technology
  2. Improved agronomy
  3. Increasing use of inputs
  4. Increasing use of capital assets
21
Q

Genetic advancement has contributed little to increasing yields of crops other than ___and ___. For other crops, changes in yields have largely been attained through improved ___.

A

Genetic advancement has contributed little to increasing yields of crops other than corn and soybeans. For other crops, changes in yields have largely been attained through improved agronomics.

22
Q

Investors in farmland should structure the farmer’s economic incentives to reflect ___ ___ ___.

A

Investors in farmland should structure the farmer’s economic incentives to reflect multiple time horizons.

23
Q

The following macroeconomic factors have the most significance in relation to farmland investment returns:

  1. ___
  2. ___ ___
  3. ___ ___
  4. ___ ___
A

The following macroeconomic factors have the most significance in relation to farmland investment returns:

  1. Inflation
  2. Interest rates
  3. Industrial production
  4. U.S. Dollar
24
Q

Commodity spot prices (are/are not) a significant factor for determining agricultural land value.

A

Commodity spot prices are not a significant factor for determining agricultural land value.

25
Q

The NCREIF Farmland Index has some characteristics similar to those of the NCREIF NPI:

  1. Only ___-___properties are included
  2. Investment returns are reported on a ___-___basis
  3. Properties must be owned by a ___-___ ___investor
  4. Properties are included in the ___ ___acquisition
A

The NCREIF Farmland Index has some characteristics similar to those of the NCREIF NPI:

  1. Only income-producing properties are included
  2. Investment returns are reported on a non-leverage basis
  3. Properties must be owned by a tax-exempt institutional investor
  4. Properties are included in the quarter after acquisition
26
Q

The NCREIF Farmland Property index is divided between ___ and ___cropland.

A

The NCREIF Farmland Property index is divided between row and permanent cropland.

27
Q

Row Cropland makes up about ___% of the NCREIF Farmland Index

A

Row Cropland makes up about 55% of the NCREIF Farmland Index

28
Q

Permanent cropland makes up about ___% of the NCREIF Farmland Index.

A

Permanent cropland makes up about 45% of the NCREIF Farmland Index.

29
Q

One consideration is whether institutional flows cause or lead price appreciation. Martin (2014) tests this using the ___-___ ___hypothesis test, which tests whether one time series is useful in forecasting another.

A

One consideration is whether institutional flows cause or lead price appreciation. Martin (2014) tests this using the Granger-causality analysis hypothesis test, which tests whether one time series is useful in forecasting another.

30
Q

Results from Martin (2014) indicate that institutional flows (do/do not) lead farmland capital appreciation or income. However, farmland capital appreciation (does/does not) lead income.

A

Results from Martin (2014) indicate that institutional flows do not lead farmland capital appreciation or income. However, farmland capital appreciation does lead income.

31
Q

___ ___ is composed of capital assets designed to enable or improve efficiency of producing, handling, and distributing agricultural commodities.

A

Agricultural infrastructure is composed of capital assets designed to enable or improve efficiency of producing, handling, and distributing agricultural commodities.

32
Q

Agricultural Assets can be classified according to their role in four economic functions:

  1. ___
  2. ___
  3. ___
  4. ___ ___ and ___
A

Agricultural Assets can be classified according to their role in four economic functions:

1. Location

2. Time

3. Quality

4. Input allocation and delivery

33
Q

Investors should consider 3 drivers of farmland productivity that can increase economic returns:

  1. ___
  2. ___
  3. ___
A

Investors should consider 3 drivers of farmland productivity that can increase economic returns:

1. Intensification

2. Extensification

3. Specialization

34
Q

___ is using more inputs to generate greater outputs.

A

Intensification is using more inputs to generate greater outputs.

35
Q

___ is increasing or decreasing land use as needed.

A

Extensification is increasing or decreasing land use as needed.

36
Q

___ is using methods like mono cropping or prescribed inter-temporal crop rotation.

A

Specialization is using methods like mono cropping or prescribed inter-temporal crop rotation.

37
Q

(On-farm storage/Off-farm storage/Both Types) are growing.

A

Both Types are growing.

38
Q

There are 4 key reasons for the appeal of timber:

  1. ___ sensitivity to ___
  2. ___products
  3. Real ___ ___
  4. ___ ___
A

There are 4 key reasons for the appeal of timber:

  1. Low sensitivity to inflation
  2. Homogeneous products
  3. Real harvesting option
  4. Long duration
39
Q

Timber returns have (increased/decreased) since the 1990s

A

Timber returns have decreased since the 1990s

40
Q

Despite the advantage of higher IRRs, non-U.S. timber investing may face ___ and ___risk.

A

Despite the advantage of higher IRRs, non-U.S. timber investing may face currency and legal risk.

41
Q

Most tree species take ___-___ years to become economically optimal for harvesting.

A

Most tree species take 10-20 years to become economically optimal for harvesting.

42
Q

A trees’ ___ ___is the number of years for it to reach the size for economically optimal harvesting.

A

A trees’ rotation age is the number of years for it to reach the size for economically optimal harvesting.

43
Q

In general, real assets have the following characteristics:

  1. I
  2. I
  3. S
  4. E
  5. L
A

n general, real assets have the following characteristics:

1. Inflation hedge

2. Intrinsic value

3. Scarce input

4. Economic Infrastructure

5. Long term

44
Q

Investments in farmland, timber and agriculturally oriented infrastructure have ___ return expectations and ___risk profiles.

A

Investments in farmland, timber and agriculturally oriented infrastructure have modest return expectations and modest risk profiles.

CAIA (39 decks)

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