Touch the Soil News #245
Almost unbelievable just 10 years ago, a new kind of farmer has emerged the likes of which have never existed in human history. This new farmer takes the form of a consortium of agricultural-savvy professionals who farm not with tractors, but with dollars. One example is Farmland Partners, Inc. – a publically traded (New York Stock Exchange) company. Farmland partners buys farms and often leases them back to the farmer they bought it from. With their dollars, their way of farming is an armchair approach that oversees what goes on with their farmland.
A relatively new company, Farmland Partners, Inc. had some 7,000 acres they owned about a year ago. Over the last twelve months they have grown 15-fold. As of today, they own over 100,000 acres. For comparison, the largest acreage farmer in the U.S. is R.D. Offutt Co. which farms around 64,000 acres.
So what does this mean to farming? Historically, a large number of farmers qualified for loans in part due to their equity in farmland. Equity in farmland provides a cushion for risks in farming. Without farmland equity, the ability for a farmer to maneuver through volatile markets is lessened.
The name – Farmland Partners, Inc. describes the business well. Farmers now have a new partner whose prior commitments go to serving returns to investors. Instead of the farmer sleeping better at night as farmland values go up, he may stay awake a nights wondering how he is not only going to keep the farm going, but keep his farmland owners happy.
Farmland Partners, Inc. is in an enviable position. As you know, most family farms have gone out of business. However, farmers in financial trouble is a scenario that is still with us today – regardless of the size of the farm. Rather than refinancing farmland to raise cash, farmers now can sell the farm to raise cash and still be able to stay on the farm. That is until the next time they need to raise cash. With the farm sold, the farmer’s land rents can rise which makes survival more difficult.
American farm auction circa 1933. Since 1935, over 5 million american family farms have gone out of business. While the number of farms being sold, the number of acres passing hands remains colossal.
Every year there is about $30 billion in farmland transactions in the United States. This large market opens the door for large investors to move in ahead of farmers to own and control farmland.
The risks to Farmland Partners, Inc. is that they have all their eggs in one basket – farmland. It’s not so much that Farmland Partners, Inc. is doing anything wrong. Farmland Partners, Inc. is but a small surface expression of how a changed financial landscape in America. The basic financial situation in America is that it now has more capital available than there are investment opportunities. As such, capital in America is moving into our economic (and personal) lives in with larger and larger footprints. Instead of farmer controlled farmland, we have “capital” controlled farmland.
An opposing movement already has momentum – many Americans are wanting to opt out of food coming from capital-intensive industrial farming. As more invested capital enters farming, food will have to bear the increased cost that returns on larger pools of capital are taking out. A tough outlook for the 50 million Americans that are already having to decide between buying food and paying rent.
Following is an insightful video by the CEO of Farmland Partners, Inc.