As farming becomes more capital intensive, the requirement to bring in outside capital to fund those needs grows. However, outside capital wants to have both a return on their money and be protected from outside creditors.
In the past, corporations were required to meet these needs. However, the advent of the Limited Liability Company about 40 years ago allows outside investors to provide capital; be protected from creditors; and allows for unique structures in providing a return on their investment.
For example, an outside investor may place funds with a farmer. This is not structured as debt. However, the outside investor will require that they get the first X% of return on the investment and then share in the profits after that point. Let's assume an investment of $1 million. The first $30,000 of profits will go to the investor. The next $100,000 of profits goes 90% to the farmer and the 10% of the investor and any return above that amount is split 50/50.
This would be extremely difficult to do in any type of corporation. We believe that you will start to see more and more of these types of investments by private capital over the next few years. They are really ramping up in the permanent crop area and it will only be a matter of time before they come into the row crop area.
Weekend Ag Update (Grains & Livestock 3.17.19)
Severe Weather Threatens U.S. Planting Intentions