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Harvest Rock Advisors, LLC

Return on Asparagus - 08/03/2018

For many years I have driven past the historical placard on Roosevelt Avenue in York marking the birthplace of General Jacob Devers.  The placard indicates that Devers was a big muckety-muck general in World War II and I'm thinking, right, a small city over promoting one of its own.

Wrong.

I finally took time last month to fully read up on General Devers and, to channel Joe Biden, he's a true historical BFD.  As in Jacob Devers, a four-star Army general, did more than any single American military leader to help the Allies win WWII! 

Devers is indeed known as the forgotten general of WWII – even in his hometown - and that's a travesty.  Devers needs to be better recognized in the pantheon of finest military leaders in US history.

Consider:

·         Devers was born in York in 1877 graduating from York High and West Point.  He reportedly was one of the finest shortstops ever to play at West Point.

·         Devers served as a professor and coach at West Point; future fellow four-star generals Dwight Eisenhower and Omar Bradley were among his student-athletes.

·         He rose to second-in-command at West Point under Douglas McArthur.

·         Devers and Patton were friends, neighbors and expert polo buddies before the war.

·         Through the force of will, in short order Devers turned the small outpost of Ft. Bragg into a major army training base.

·         An artillery expert, Devers helped to re-design the Sherman tank and configure army artillery systems that defeated the German tanks in Europe.  To quote Patton: "Thanks to Devers, we are ready."

·         He led the "Second D-Day" invasion in southern France in August 1944, routed the German army and liberated much of France.  Many French towns evidently have streets named "Devers".

·         While the rest of the US Army was bogged down, by November 1944 Devers's division was the first to reach the German border and was primed to cross the Rhine and attack the Germans, just weeks before the Battle of the Bulge.  However, due to questionable motives, Eisenhower inexplicably vetoed the attack.

For non-serious reasons, Eisenhower detested Devers and would have fired him if not for Army Chief George Marshall; Devers was Marshall's go-to problem solver. 

Ike's personal animus towards Devers, along with his penchant for "analysis paralysis" led to the fateful decision to turn down Devers's fervent plea to surprise attack the Germans and possibly end the war before the Battle of the Bulge.  After the war, Patton, several generals and many historians concurred with Devers' own assessment that Eisenhower made a major (and costly) military blunder by not listening to him.

History books need to go much lighter on Eisenhower and heavier on our local war hero, Jacob Devers.

I spent ten wonderful years delivering financial planning services to farmers and agribusinesses across much of Pennsylvania.  While our practice is now more balanced, I still work with many farmers and really feel for them right now as they fight for their survival dealing with an adverse agricultural commodity price cycle, the global trade mess and grave labor shortages. 

The current travails notwithstanding, now and again I still get asked about how to invest in agriculture.

The case for making an investment in agriculture is thematic:  Future population growth, improving diets in emerging countries, the growing scarcity of ample ground water and less arable farmland all could lead to global food shortages, rising crop prices and higher farmland values.   

Agriculture is the oldest industry in the world and, unlike technology, is a staple good.  As an investment class, agriculture is a textbook diversifier, non-correlated to stocks and bonds, plus farmland can be an effective inflation hedge.

The sources of investment return from investing in agriculture comes from business / lease income from production agriculture and / or asset appreciation from farm realty, ag products or securities connected to the ag industry.

Since the profit margins on most agricultural products is lackluster, the more interesting ag investing play is farm realty - they aren't making land anymore   All farmland is not the same, however and appreciation is linked to factors like geography, commodity prices, soil quality, water and farming practices.

In modern times, US farmland has in fact been a good investment.  An Iowa State study indicated that Iowa farmland purchased in 1970 for $419 per acre was worth $7,200 acre in 2016, an average annual rate of return that bested the Dow Jones Industrial Average over the same timeframe.

The average age of the US farmer is now age 57 and ownership of two-thirds of the nation's farmland is in the process of being turned over, so more opportunities to invest in farmland are coming.  Already, thirty percent of all farmland is owned by non-operators who lease the farm to farmers, many foreign concerns.

The reality is that the average Joe cannot and should not purchase farmland.   Instead, Joe can invest in a real estate investment trust ("REIT") that owns a diversified portfolio of farmland leased to farm operators.

Private equity funds also invest in farmland, often targeting low-value land, such as pastures, then upgrading the land for production agriculture use.

Another interesting ag investment play is new technology.  Due to their structural labor shortage issues, farmers are pushing into robotics and mechanical harvesting equipment.  There is real growth potential for this labor-saving technology since the farm adoption rate is still quite low.  Alternative farming techniques, like hydroponics is also creating venture capital investment opportunities.

For investors with strong stomachs, the futures markets are a vehicle in which to invest in ag commodities. For centuries, futures contracts have enabled farmers to hedge commodity market risk.  Managed futures strategies run by skilled commodity trading advisors are potentially the best way to invest in ag commodities since they have a risk management discipline and can capitalize on both bullish and bearish price trends.

At your next meal, be sure to salute the great American farmer, the most formidable manufacturing industry in the world – maybe even invest in them.

Until next time, be well….Tim

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