Minding Ag's Business

Farmers Split Over Wall St. Landlords

Agricultural REITs--short for real estate investment trusts--may be infant businesses at the moment, barely a ripple in the trillions of dollars of farm real estate. But news that Farmland Partners Inc. (NYSE:FPI) smashed real estate records last week by acquiring 120 Illinois farms totaling 22,300 acres certainly piqued reader interest, as did DTN's exclusive interview with Farmland Partners CEO Paul Pittman (see two related stories http://www.dtnpf.com/… and my October 2014 interview http://goo.gl/…).
Readers divided into two camps: Jim from Denver, a retiree from the farm equipment business, wonders if the same sort of investor phenomenon could happen in Iowa where he has made a nice living crop sharing on 2,000 acres and just bought another farm this week. (Possibly, but not likely. Iowa's attorney general says he likes the state's corporate farming ban as is, but legal scholars believe the law lacks a defense given the landmark 2006 Eighth Circuit Court of Appeals ruling that Nebraska's corporate farmland ban was unconstitutional).
"If I were buying farms, I wouldn't want to compete with a REIT. On the other hand, if I wanted to sell I couldn't take their money either," Jim said.
A farmer from northeast Colorado-southwest Nebraska who works with multiple pension funds observes investors have a sizable influence in his community. But his pension fund landlords are "large and patient," with total ag exposure just a few percent of their overall portfolio, so they don't flip land frequently to boost returns.
"It remains to be seen if traders [like Farmland Partners] will understand and value the long-term cyclical natural of agriculture," he said.
Given the aging farm population, he doubts the trend toward institutional ownership in agriculture will reverse--"especially with so many farmers wanting to cash out when land prices are near all-time highs and commodity prices are at recent year lows."
Gordon, from Brookings, S.D., agreed with Farmland Partners' CEO Paul Pittman that farmland's outlook remained bright long-term. "I too am a believer in farmland and ag processing as very good long term investments and legacy assets," he emailed.
On the other hand, other readers questioned Pittman's premise that grain producers won't need much cash rent relief for 2016, despite dire warnings from land grant economists. Pittman rationalizes that farmers will hold on to rented ground for zero profit, if they believe prices will recover in the next two or three years. He cited phenomenal crop yields for some of his tenants in eastern Colorado in 2015 as proof that growers will have deep pockets to afford tight margins in 2016.
John Higgins lives "smack dab in the middle of eastern Colorado" and emailed, "In reading your recent article on mega landlords I was struck by Mr. Pittman’s comment about dryland corn in eastern Colorado averaging 120-140 bushels per acre [in 2015]...while there could have been a field or two make that kind of yield the vast majority of corn I have heard of on a dryland basis is much closer to 70 bushel corn. Historically we beg for an average of 60 bushels on a 10-year basis. Mr. Pittman may understand Illinois farming but I feel that he has no real understanding of the environment out here on the High Plains. We have had young people cash leasing land at double the previous going rate and most of their assets have been on Big Iron or Purple wave auctions within a couple of years. It is interesting that most of these young farmers have had to go to the front range to get financing because the banks out here in our country understand the economics of the farming game in our area."
I can see both sides but the entrée of Wall Street funds into agriculture raises some policy questions worth discussing:
--Are the nine Midwest state bans on corporate ownership of farmland still worth defending in light of the 2006 Eighth Circuit Court of Appeals ruling that found Nebraska's law unconstitutional? If they are, are states enforcing bans vigorously or just ignoring toothless laws?
--Do REITs provide a public service to agriculture by increasing the pool of land buyers in the market place, or do they make it more difficult for young operators to get a foothold as operators?
--Do institutional owners like insurance companies and REITs deserve preferential taxpayer-backed credit to buy farmland? Farmland Partners' current $165 million facility from Farmer Mac includes three-year, interest only notes as low as 2.4%, something no individual farmer could garner on his own.
Given the speed of institutional money flowing into farmland, the issues are worth raising. Just this week, the New York Times reported that TIAA-CREF’s Brazilian farmland holdings climbed to 633,391 acres at the start of 2015, up from 257,877 acres in 2012 (http://goo.gl/…). That was in spite of the country's limits on foreign ownership of farmland. Will we duplicate that kind of scale of Wall Street ownership of U.S. farmland?
Follow Marcia Taylor on Twitter@MarciaZTaylor


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Bonnie Dukowitz
11/25/2015 | 1:57 PM CST
Migrant workers will save the day. For a while.
andrew mohlman
11/25/2015 | 8:17 AM CST
We Will be in 80s environment sooner than most realize nobody will cares till farmers have no savings left to pay bills. It's okay for a farmer to work the till the day they die well used must be opinion of people that trade commodities they are stealing resources the bear needs to be beat down and hibernate for a while
Freeport IL
11/24/2015 | 7:56 PM CST
We went looking for some historic land relationships to see if there might be an indication of future outcomes. We used information from a USDA website (http://www.ers.usda.gov/data-products/commodity-costs-and-returns.aspx). Illinois land values are base on an index and come from USDA. This information is available at; http://www.farmdoc.illinois.edu/manage/pdfs/index_numbers.pdf . Land as a percentage of other cash expenses since 1996 has been between 39% and 63%. Land tends to be slower to increase and slower to decrease then other cash expenses. This seems to accounts for most of the change in percentage. Since 1996 land rent has only declined twice - 2001; 3.8% and 2006; 1.6%. Land rents did see frequent declines in the early to mid-1980's. Land rents dropped in half from 1979 to 1986. Land value index declined twice since 1996 - 2009; 2.9% and 2015; 0.2%. We divided the cash rent amount by the Illinois value index. This provides a relationship of return from rent as a relationship with land value. This ratio peaked in 1996 at $0.90 per Illinois index value and has declined steadily. The value was $0.51 in 2015. This might be directly related to the decline in interest rates. The average annual prime interest rate was 8.375% in 1996 and 3.25% since December of 2008. The Illinois land value, from the index, increase almost four fold from 1996 to 2015. That increase is 7.3% for the last twenty years. These data sets come from very large areas. Individual experience may be quite different and only very general conclusions might be projected. It looks from historic Illinois data that cash rents will likely not decline any substantial or consistent amount unless a 1980 environment occurs. Land values will likely not decline any substantial or consistent amount unless a 1980 environment occurs, interest rates increase above something like 5% as measured by the prime rate without increasing land rents or a combination as stagnant cash rents and increasing interest rates. This outlook might help explain the trust's purchasing activities. Freeport, IL
andrew mohlman
11/23/2015 | 6:23 PM CST
More like out of control capitalist to me
11/23/2015 | 5:06 PM CST
More and more farm land owned by investor groups, rural people doing the actual work farming the land and getting only a W2 --- sounds familiar --- the ones doing all the work and having no vested interest in preserving the land end up not caring what happens to the land. We are moving in the direction of the failed model of the former USSR don't you think ?
Raymond Simpkins
11/21/2015 | 8:08 AM CST
This is the beginning to the end of agriculture as we know it. Land cost was the only input farmers could control. When prices would not support high land cost the price of land would soften. Not anymore with this kind of bull-crap. All states need to follow Iowa and outlaw corporate land ownership.There is no place for this in ag. I hope that someday they get stuck with it when no-one can afford to farm it for the investors.They may have a lot of expensive recreational land.
Bonnie Dukowitz
11/20/2015 | 10:41 AM CST
Like Walmart, and others, there is no good to come from this type of monopoly.
Raymond Simpkins
11/19/2015 | 9:41 PM CST
So much for family farms. Young people might as well go find something else to do. No one can compete with that. What happens when all those investors want out? And they will when something better comes along. Nobody can farm at a loss for long there is no room to take a loss