Wall Street-type investment firms have found out what most farmers have believed for years–farmland is a good long-term investment. More institutional-type investors will likely enter the picture and buy land this year as farmers, who might have vied for the property three or four years ago, are holding back and hanging onto their cash.
So, what does this mean to retailers? It depends on the buyer and how its land purchases play out.
Some of the investment firms buying land lease it back to the farmer, so he can continue to operate. This is a standard practice for Indianapolis-based US Agriculture, according to Brian Wise, director of acquisitions for the company. In the process, the grower’s relationship with his or her retailer usually stays intact because the firm is acting only as a landlord, Wise says.
“I don’t see us as a detriment to the retailer,” he explains. “It’s probably the opposite.”
On the other hand, if the farmer’s crop-input records, yields and financials are less than positive, then the investment firm may opt to lease the land to a new operator–who may or may not work with the original farmer’s retailer.
Wise says he believes this situation is one retailers may see more often now, given the current commodity slump as well as the softening of land values in some geographies.
Large-scale purchases of cropland by investment firms often deliver a jolt to an area’s farmers and agribusinesses, including retailers. One that captured headlines recently was the sale of 8,638 acres in Illinois to Denver-based Farmland Partners Inc. The firm bought the land at auction with a bid of $55.311 million.
The land was offered in 46 total tracts, ranging from 15 acres to 597 acres. Farmers showed up to bid, but large investors held the greatest interest and sought the entire land package, according to R.D. Schrader, president of Schrader Real Estate and Auction Company.
“The operators were in the room, (but) the investors won out,” Schrader said in a recent interview with AgWeb.com.
In a written statement, CEO Paul Pittman says Farmland Partners will negotiate new lease agreements for the land among multiple tenants. How those agreements impact retailers ultimately is still unknown, but who farms all of those acres is likely to change in some cases based on the sheer magnitude of the land that was purchased.
Still The Minority. While investment firms are purchasing farmland, they own less than 1% of the $2.5 trillion U.S. farmland market, according to Bruce Sherrick, University of Illinois professor of farmland economics at the TIAA-CREF Center for Farmland Research.
Farmers and their family members still own or control about 61% of the 911 million total acres in farms, notes the 2014 USDA ERS survey, Tenure, Ownership, and Transition of Agricultural Land (TOTAL).
TOTAL estimates one-tenth of the land outside of Alaska and Hawaii, about 91.5 million acres, is slated for ownership transfer in the next five years; this excludes farmland in or expected to be put into wills. About 21 million acres of that land is expected to be sold to a non-relative.
“Farmland has always been a valuable resource, but what we see in the most recent TOTAL results is the emergence of farmland as a future investment,” notes Joseph T. Reilly, USDA NASS administrator.
Investors, such as Farmland Partners’ Pittman, are banking on the expectation that increasing global demand for food will keep land values moving upward in the years ahead. The United Nations predicts the worldwide population will reach 9.7 billion people by 2050, and correspondingly, food production will need to increase between 50% and 100%. It’s just one of the reasons a common saying among some institutional investors is that buying and holding land is like having “gold with a coupon.”
Your farmer-customers have read a story in the January issue of Top Producer, AgPro’s sister publication, about how to work with investment companies and form strong partnerships. Titled “Your Farmland Investor Cheat Sheet,” the article features five firms who share how their portfolios are structured and what they expect of the farmers they hire. Click here to read and see the table detailing the firms’ portfolios.