US farmland investors anticipate strong year-end

Farmland investors anticipate rising commodity prices, falling interest rates and continued support from cost-cutting measures by US farmers, which is creating optimism for the fall, says the president of land investment and management firm Peoples Company.

Steve Bruere told Agri Investor the renewed optimism he has sensed in the market has made him feel bullish for the first time since 2013.

“Now all of a sudden, guys are in a position where they can make some money farming again,” Bruere said. “With some of the smart money we do business with; we’re sensing a lot of optimism going into the fall.”

Bruere’s optimism was reflected in last month’s National Council of Real Estate Investment Fiduciaries report, which reported income-driven growth of 0.73 percent during Q2 brought the cumulative one-year average return across US farmland to 5.67 percent.

NCREIF said the pace of growth in US farmland markets in the three months ending July 1 surpassed the 0.70 percent seen during the first quarter of 2019, but lagged the 1.13 percent in the three months ending Q2 2018.

On a late July conference call discussing the report, University of Illinois professor Bruce Sherrick said this year’s wet planting conditions would have a larger effect on corn markets than soy prices.

“There are more possible outcomes for income this year than, maybe, I have ever seen before,” Sherrick said.

“You will have parts of the Corn Belt that are going to be absolutely celebrating the bad conditions that other parts of the Corn Belt had, because they’ll have a real crop, and prices could go up quite a bit, and they’ll get a facilitation payment.”

NCREIF’s south-east grouping – which combines Alabama, Florida, Georgia and South Carolina – led among regional groups with 2.23 percent growth in the second quarter, which was propelled by 2.18 percent growth in earnings.

The region was also one of several to see minor depreciation during the second quarter, said NCREIF.

Sherrick added that the timing of most farmland appraisals dictates the fourth quarter is generally when the NCREIF index captures most significant changes in farmland valuation. He said that timing, combined with the general seasonality of returns, meant it was surprising to see “very minor” negative appreciation in the Q2 index.

“People will ask why and the answer is: because markets are constantly adjusting their expectations of what the forward incomes look like, and we just get some of that normal variation,” Sherrick said.

The 899 farmland properties analyzed in NCREIF’s index have a cumulative value of $10.5 billion and are managed by eight firms: Westchester Group Investment Management, Hancock Agricultural Investment Group, Prudential Agricultural Investments, UBS Farmland Investors, Gladstone Land Corporation, US Agriculture, Cottonwood Ag Management and Farmland Opportunity.