US fund managers bullish despite commodities dip

Recent dips in commodity prices have prompted speculative reports about the possible effects on US farmland values and investments. But some investment managers say this focus is too narrow.

US farmland, cropland and ranch values have been increasing – by nearly 8 percent this year compared to last, according to the US Department of Agriculture – but recent decreases in trading prices for crops like corn and soybeans has prompted speculation that US farmland and related investment vehicles could lose value.

Soybean prices have dropped more than 15 percent since July, for example, while corn prices are expected to fall by 20 percent by year-end.

Farmland investment managers, however, are quick to say such speculation fails to appreciate that price volatility for crops is part and parcel of the agriculture investment world.

“We think the low prices will pass, this kind of price pattern occurs every five years or so and it’s expected. People who are surprised by low prices probably shouldn’t be in agriculture,” Greyson Colvin, co-founder of Colvin & Co, a Minnesota-based farmland investment firm, told Agri Investor.

His view was echoed by Todd Miller, partner at American Farmland Investments. “In actual fact, commodity prices, corn being an example, are right on a 15-year average,” he said, stressing today’s pricing wasn’t indicative of what it will be a year or two from now.  He did note it was possible land rents would come down alongside commodity prices by 10-20 percent, though.

Miller also emphasised the fact that commodity prices were not the only factor for agri fund managers’ success. “There are lots of fundamentals which make up the success of a farming enterprise, including climate factors such as local drought, for example.”

Commodity prices may look like a foregone conclusion this year, but farmland values are not, according to Miller. “Farmers are making more money now than they have historically, and macro-economic factors suggest that American farmers still have other markets to sell to,” he said.

There is also the idea that so-called ‘monocropping’ is negatively affecting farmer’s ability to offset volatility in row crop pricing. “From an investment perspective, LPs and GPs should look for variation in production and the potential to support multiple crops,” Miller said. “Historically, much of farm operators’ diversification in planting [has been] reactive, rather than precautionary. Having a clear strategy, and planning ahead based on multiple economic indicators for events like this helps GPs manage the investment better.”