Some Thoughts on the Current Investment Climate By Benedict T. Palen, Jr.

There have been some serious headwinds in US agriculture over the past 3-4 years, including lower farm incomes, large carryover stocks of grains here and around much of the major producing areas of the world, and unfavorable trends in the costs of most crop inputs. 

This has come at a time when billions of dollars have been raised by large funds to invest into agriculture here, and in other countries.  In addition, more recent events of concern were earlier this year, when the Trump administration created major concerns in many sectors of the economy by seeking major changes in tariff arrangements with other countries, many of whom are major purchasers of US farmers’ crops, along with the recent rise in bond yields, which are often used as a benchmark by some investors when considering the income potential from farmland. 

All of these factors beg the question of what direction a prospective investor, or current landowner, should take with respect to US farmland.    The answers are not easy to ascertain.   However, some distinctions can be made.   

The ups and downs for farm incomes and carryover grain stocks, as well as trends in crop input costs, are not particularly out of the norm. In fact, they are in line with the cyclicality of US agriculture and the mega factors that influence it.   Many investors and landowners understand the cyclicality, and build that into their financial modeling.

The tariffs are, however, an entirely different story.  They have the potential to adversely impact the world market share of certain grains for US farmers, and that is likely to mean that competitors, whether South American or eastern European countries, will step in and pick up the slack.  That could mean long lasting negative impacts will be felt in the US.  

Many lenders and farmers are expressing concern, and the government’s so-called “aid” to help US farmers is nothing more than borrowing money from one government pocket to put it into another for distribution to farmers.   

There can be a fine line between being opportunistic, and cautious.   Here, at this time, we have the added factor of several billion dollars of dry powder from institutional investors looking for farmland deals in the US.   Each situation is different, and of course there will always be those publicized farmland sales that are suggested by some as evidence that the market is “strong,” or “stable.”   From the perspective of someone who has been in this market for 40 years, caution is the byword.  

There is more downside risk at this time—due to the tariff talk—than we have seen in the past ten years.   If I were a prospective seller, I might take advantage of “an offer I couldn’t refuse.”  If I were writing a check to buy a farm, though, I might just want to keep that money in the bank until I saw how all of this settles out.   These tariffs are more than a short term cyclical event; they are fundamental to US agriculture.