Tuesday, May 10, 2016

What's Trending in Farmland Prices and Ownership? A Report.

The subject of farmland prices, ownership, and management is this Tuesday's featured trend...

COMMENT: I expect that the trend of REITs, investors, and retirement funds buying and owning farmland will continue and perhaps escalate - for two main reasons. One, industrial farming practices using giant cost-prohibitive equipment are designed and affordable primarily for the largest scale operations. Two, today's aged farmer demographics means that there is a generational farmland transfer happening, and many inheriting the land will either sell it, or choose to keep it while a business manages and operates it. This assumes that policy in D.C. will not change much going forward and that the economy remains stable. (I am not endorsing this trend, just reporting it.)--Kay McDonald

Investors Continue to Buy Farmland.
Over the past 25 years, the annual return on farmland has averaged 11.5 percent, according to the National Council of Real Estate Investment Fiduciaries’ Farmland Index. That’s nearly 4 percentage points better than the Standard & Poor’s 500 averaged over the same period. That helps explain why nonfarming landlords hold roughly 80 percent of the 353.8 million acres farmed in the United States, according to the U.S. Department of Agriculture. Those landlords collected $31.2 billion in rental income in 2014. In 2014 and 2015, investment funds spent more than $2 billion on U.S. farmland, according to Institutional Investor. Last year, TIAA-CREF raised $3 billion for a global farmland-investment partnership, upping the firm’s farmland total to more than $5 billion."
The above quotes are from The Advocate in an article by Ted Griggs.

Farmland Partners, a Publicly Traded NYSE REIT, is growing rapidly.

Link to Source
We've all seen the headlines... "Farmland Partners Closes $197 Million Deal for 22,000 Acres in Illinois" or "Farmland Partners Inc. to Purchase 15,042 acres for $49.8 Million". The following data is from Farmland Partner's website. The company is based in Denver, Colorado.

At the time of Farmland Partner's IPO (April 2014), Farmland Partners Inc. (the “Company”) had over $70 million of assets. The Company’s assets now total approximately $600 million. Since going public, the Company’s portfolio has grown from 38 farms and 7,323 acres to a total of 263 farms with an aggregate of approximately 110,827 acres.

o Corn Belt: 33,133 acres
o Delta: 24,715 acres
o Plains: 27,433 acres
o Southeast: 25,546 acres

Among risks to investing in this REIT, according to the company website, are changes in crop insurance policy or ethanol consumption.

Farmers National Company is Growing, too.
Omaha based Farmers National Company helps land owners manage their land. In 2014, the company oversaw 4,850 farms and ranches in 24 states producing a revenue of $61 million. The company began in 1929 and is currently under the direction of CEO Jim Farrell. Currently they are expanding geographically, including into Canada. The company sees today's farm owner aging demographics as its growth area. Families need farm or land management when the farm owner can no longer operate the farm, or, if the family wants to keep property without hands on operation. They also handle farm real estate transactions and auctions and help investors locate farmland for purchase.

Farmland Prices averaged up 10.1 percent in Canada in 2015.

From Farm Credit Canada:

The average value of Canadian farmland increased 10.1% in 2015, following gains of 14.3% in 2014 and 22.1% in 2013. Overall, the average national values have continued to rise since 1993. In all provinces, farmland values increased. Manitoba experienced the highest average increase at 12.4%, followed by Alberta at 11.6%, Quebec at 9.6% and Saskatchewan at 9.4%.

[Link to report]

Farmland Prices are down in the Midwest.
In Illinois, according to the Illinois Society of Professional Farm Managers and Rural Appraisers, good farmland fell by 8 percent last year, while average quality farmland fell 9 percent. In Iowa, on average, the price of farmland fell 9 percent in 2015 as compared to 2014, according to the Iowa Realtors Land Institute farmland survey.

Agweb.com reported that an East-Central Nebraska farm brought $10,000/acre, and, a Northwest Ohio farm brought $4,617/acre in March of this year.

More Investment Numbers...
According to a July 2015 Orion Magazine article: UBS AgriVest, a division of the biggest bank in Switzerland, owns more than half a billion dollars of farmland in the U.S. alone; Hancock Agricultural Investment Group (HAIG), a subsidiary of the biggest insurance company in Canada, has $2.2 billion in global farmland; the Teacher Insurance and Annuity Association—College Retirement Equities Fund, TIAA-CREF, one of the world’s largest pension funds, has $3 billion in agriculture worldwide.
[Link to "Buying the Farm" - Orion Magazine]

Large Interests Own Australia's Farmland.
"A handful of Australian families own more of the ­nation’s farmland than all foreign interests combined. An investigation by The Weekly Times can reveal 14 domestic families and pastoral companies operate 50.3 million hectares of Australian farmland combined — more than the area controlled by foreign interests. The Government’s latest ­report on foreign ownership in Australian agriculture in 2013 showed 49.6 million hectares of farms — or 11 per cent — were foreign owned." (The Weekly Times)

To view last week's trendspotting post, click here.


  1. Also, I'd like to mention and point readers towards a farmland clearinghouse in the Midwest,

    "Are you a beginning farmer looking to rent or purchase farmland in the Midwest? Or are you an established farmer/landowner in the Midwest who is seeking a beginning farmer to purchase or rent your land, or to work with in a partnership situation?"

    "Seeking Farmers-Seeking Land Clearinghouse":


  2. As a layman I dislike this trend of non-farmers 'corportizing' farms.

    What makes a single individual unable to farm ? What make a corporate farm a more risk adverse form of farming compared to individual farming ?

    I intuitively only see a spider web of deceit in this trending story.

  3. RBM
    To do a proper commentary on this subject would have meant a very long post. I pointed out "Among risks to investing in this REIT, according to the company website, are changes in crop insurance policy or ethanol consumption" under the Farmland Partners section for a reason - to point out that policy drives this and allows it to happen. The small farmer forever struggles to make a living. On the other hand, there aren't enough young people interested in living in rural areas so there are 2 sides to the equation. QE and low interest rates also drive the investors to invest in these vehicles. And, once farmland becomes an investment, the interest becomes the annual report and the bottom line. The cynic in me thinks nothing can or will stop it.

    1. I have only good things to see about you commentary, Kay.

      To hopefully clarify my dislike, in other words, I think farming and farmers are getting maliciously squeezed by the 'financialization' of farming. In terms of sustainability, not of the farming practices, but of the farming as an industry that keeps us alive.

    2. If I had my druthers, large swaths of farmland should be idled, or as in Europe's proposal a few years ago, a certain percent of each farm should be naturalized (and farmers should be paid for that idled land because, and this is one of the problems, they have to pay large amounts of property tax on that land - perhaps the investors have some kind of advantage related to those taxes I don't know). Then, the principle of land ownership would be upheld while providing habitat for the monarchs, bees, and songbirds.

      While larger farms are more efficient, I also see that the U.S. farm commodity producers are being challenged by increasing acres of industrial lands in the developing nations, so I would not personally ever invest in one of the REITs as I would consider them risky. I was outspoken against Jim Rogers for that very reason years ago (and got a personal response from him on Seeking Alpha once) because I don't see guaranteed returns for producing monoculture crops under an economic system of supply and demand. Turns out that I was right and he was wrong (because he was simply a mouthpiece for his own investment vehicles) but he still gets lots of airtime because that's how the world works.

      Right now, for example, inputs and rents haven't fallen enough to match commodity prices and that is not sustainable.

  4. Now, (today) the day after I posted this topic, Jeremy Grantham's very popular GMO report came out and under his investment advice

    ■ Farmland is likely to outperform most other assets. It is still my first choice for longterm investing.

    ■ Forestry should perform above aggregate portfolio averages and be less volatile than equities.