US farmer confidence highlights investment opportunities

If commodity prices and cash rents continue to rise, there could be a limited time window to snap up some undervalued land deals.

American actor Will Rogers once said that “the farmer has to be an optimist or he wouldn’t still be a farmer.” But farmer optimism is hitting new highs despite a rough stretch and years of declining incomes, and it is rubbing off on the investment community.

In January, the Purdue/CME Group Ag Economy Barometer, a survey of agri producers, reached its highest point with its largest month-to-month sentiment boost. While the data collection began in October 2015, a relatively low point for US farmers, this enthusiasm is not unfounded as commodity prices and cash rents rise.

“From the farmer’s standpoint, the outlook for 2017 revenue has been improving since the start of the 2016 harvest,” said Marc Schober, director with Colvin & Co, a farmland investment manager.

Schober shared with me an income statement from one of the more than 60 farms the firm owns, showing the going price of corn at $4.02 per bushel, based on an average of the December 2017 and March 2018 corn futures. It’s not the $7-plus highs during the glory years of 2011-12, but it’s a vast improvement over the $3.60-range from last July, which would bring almost no profit at all.

“About six months ago, some people were talking about corn falling to $2, and getting past that has been a big hurdle,” said Chris Soules, of Peoples Company, an Iowa-based land brokerage with a diversified offering of land management, land appraisal and land investing services. “I see more stability going forward and I think we’ll see a little more aggressive buying by farmers – and investors – if we continue to see stable crop prices.”

Soules, who also farms over 5,000 acres of land with his family in north-east Iowa, added: “As a farmer myself, we’re coming off of record corn yields. Input prices are down significantly, with chemical companies becoming much more negotiable this winter, and we’ve had nominal increases in cash rents.”

Another reason for optimism is that demand across the globe for staple crops continues to increase. World consumption of wheat is up by about 12 percent since the 2010-11 season, corn is up 20 percent, and soybean consumption has jumped nearly 32 percent.

Sources noted that if commodity prices continue to climb, land prices could follow, creating a potential window of opportunity for investors. They suggested sticking to staple crops, investing on the outskirts of major farming regions, and targeting undervalued land while it still exists.

“It could be weeks, months or a year, but land values could start to follow, and if I’m an investor I’m going to pay very close attention to that,” said Karl Setzer, a market analyst with MaxYield Cooperative. “I would suggest looking at fringe areas. That is where land is being developed for production, and it is a better buy than land in the heart of the corn belt.”

“I [also] suggest a client plant the crop with the least amount of risk,” he added. “If you live in a place with a high corn demand base, raise corn. It may have a higher cost of production, but your marketing opportunities are greater. Bottom line, look at total revenue generation, not just one side of the equation.”

There are clear positive signs in the current market building confidence among the already resilient US farmer. If the trends underpinning that optimism continue, there might be scope to pick up undervalued land deals before land prices go up.