Outside Investment Firms Purchasing U.S. Farmland-Impact on Farmers, Agribusiness12/27/2017
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 are likely to enter the picture and buy land as many farmers, who would have vied for the property three or four years ago, are holding back and hanging onto their cash.
So, what does this mean to the ag community? It depends on the firm 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 relationships with his retailer and other suppliers usually stay intact because the firm is acting only as a landlord, Wise explains.
On the other hand, if the farmer’s crop-input records, yields and financials are less than positive, the investment firm may opt to lease the land to a new operator–who may or may not work with the original farmer’s suppliers.
Large-scale purchases of cropland by investment firms often deliver a jolt to farmers and agribusinesses in the area. One that captured headlines earlier this year was the sale of 8,638 acres in Illinois to Denver-based Farmland Partners Inc. The firm purchased the land at auction with a bid of $55.311 million dollars.
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 purchase, 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 an interview with AgWeb.
In a written statement, CEO Paul Pittman says Farmland Partners will negotiate new lease agreements for the land among multiple tenants. Who farms all those acres is likely to change in some cases based on the sheer magnitude of the land purchased.
While investment firms are purchasing farmland, they still 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 own or control about 61% of the 911 million total acres in U.S. farms of which 400 million is cropland. That’s according to the 2014 USDA-ERS survey, Tenure, Ownership, and Transition of Agricultural Land (TOTAL).
TOTAL estimates one-tenth of the 911 million acres outside of Alaska and Hawaii, about 91.5 million acres, is slated for ownership transfer in the next five years, not including farmland that is in or is 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, despite some softening some areas have experienced the past year. 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.”