Best of 2015: Farmland Partners on row crops vs speciality crops and TPP

Over the Christmas and New Year period, we’re looking back at some of our most-popular news stories and commentaries.

Paul Pittman is the Chief Executive of Farmland Partners, a publicly traded real estate investment trust (REIT). Farmland Partners owns 123 farms in the United States. The company’s farms primarily produce row crops, including corn, wheat and soybeans. In 2014, Farmland Partners became just the second publicly traded farmland REIT, issuing a $53 million IPO.

As an investor primarily in row crop land, do recent dips in corn prices concern you?

I try not to take much commodity risk. We’re buying farmland not farming. The farmland does not chop around with the ups and downs of commodity prices. Farmland, as a scarce resource used to produce food, fundamentally trades based on somebody’s 3 to 5-year view of the demand for the products that that land can produce. The last time you had a negative 3 to 5-year view on global food demand was in the mid-80s and the time before that was in the Depression.

Everyone gets all wrapped around the axle [because] corn’s down. But corn being down and corn land being down are not connected directly. A bad corn price for a decade is going to hurt corn land values, but a bad price for a year or two won’t.

Farmland went up nationwide 2.4 percent between August 2014 and August 2015. You wouldn’t ever know that if you just read the headlines.

From the information released so far on the Trans-Pacific Partnership (TPP), how do you think it will impact the US agriculture sector?

I think you’ll see gradual increases in US agricultural exports to virtually every country that’s part of TPP. I don’t know that every single product wins, but I think across the board on average it’s a good thing.

So overall, you feel that the agreement plays to US  advantages in agri production?

At the highest and simplest level, the US is a low-cost producer in almost all production agriculture. When you talk about raising chickens, growing corn, growing beans, growing most fruits and vegetables, we’re a low-cost producer.

When you think of something like a trade agreement, low-cost producers tend to benefit from reductions in tariffs and restraints on trade of any type and that’s what this is.

I’m sure if you went product by product, there will be a product or two that frankly won’t benefit. But I think overwhelmingly it’s good for US production agriculture. It’s certainly good for [Farmland Partners’] business.

There have been some concerns over negative impacts from TPP for US dairy producers. Do you think those have merit?

I think there might be less enthusiasm from dairy producers because New Zealand produces a lot of milk and dairy products. But I doubt it’s very detrimental to US dairy. The high-value dairy products, because of transportation costs, are somewhat domestic markets.

Liquid milk, for example, is a domestic market. It’s hardly even a nationwide market because of shipping costs. And so, it’s hard to think that you’re going to get hurt. At the powdered milk and high-value cheese level, maybe there’s some impact. But I doubt [its significance] when someone looks back 10 years from now.

What about protections for US sugar producers?

If you think of it from a policy perspective, the US is a big country. Do you really want zero sugar production in the country? Probably not. You’d like to think that government officials doing food security thinking. It’s not always just tariffs and protecting big business. Do you really want to have zero sugar production other than that made from sugar beets or corn in? Probably not. And if you don’t protect it a little bit, that’s what will happen.

Is there anything you’ve seen in the agreement that might potentially change your investment strategy?

We’ll continue to do what we’ve always done, which is build a portfolio that connects investors to the global food demand story in the face of land scarcity, and that means we will have a relatively-diverse set of crops and geographies over time. But fundamentally there will be more row crops than anything else.

Are you concerned that you may be missing out on more high-return crops?

We’re not negative on speciality crops. We own a blueberry farm. We’ve got edamame and some pinto beans. There’s a lot of what you’d call speciality crops in our portfolio, and there’ll be more over time. But if you think about it from a value of total US production, it shouldn’t be 20 or 25 percent of a portfolio or you’re actually over-weighting those specialty products.

I’m not beating up on the speciality crops. It’s all part of the global food demand story. But I tend to be someone who thinks that markets largely work, and there’s a reason you ought to be getting higher returns [from speciality crops]. For example, what you never hear about in the almond story is all the farmers who planted walnuts instead of almonds and found for whatever reason that people don’t eat as many walnuts as they thought, and they’re tearing those trees out.