Year End Thoughts On The Us Farmland Market By Benedict T. Palen, Jr.

These are precarious times for the US farmland market.  I have previously written about the headwinds that it was facing from large crop inventories, trade and tariff issues, and rising interest rates.  None of the uncertainty has diminished.  In fact, the longer these issues linger, the greater the concern about this market.

A factor that looms large, and which was not on the radar screen, say, 15 years ago, is the large amount of land owned by investment groups, along with the amounts of “dry powder” that some of these funds have.  It’s important to keep in mind that the newness of many of these funds means that they have not gone through a significant adjustment (downward) in land values, nor have they had too much experience with historical annual cash returns from owning farmland.  

Will the funds be buyers, or will they be sellers?  That is a question that is impossible to answer right now.   And the answer will likely vary by region of the country, with possibly more pressure on these funds in the broad acre crops areas, and less so in the permanent crop areas.

The issue of the direction of some of these funds also has the backdrop of rising yields on interest bearing financial instruments, and a falling stock market. 

It would appear that, for the savvy buyer who understands the cycles of the farmland market, and who has “patient capital,” there will be opportunities during this market reset.   This requires very careful analysis of a farm, the area in which it is located, and, of course, good knowledge of the macro factors that I have noted.

Farm Safety Considerations By Benedict T. Palen, Jr.

Farming is widely considered to be a very dangerous occupation, and according to some statistics, as dangerous as construction.  That being said, it is worth thinking about the differences in safety awareness and accident protocols on a typical farm and construction site.  Having had experience in both industries, the differences can be somewhat surprising.

For instance, on most construction sites, one would find personnel who have had various levels of safety training, ranging from basic first aid, up to CPR.  It is typical on a construction site to have multiple first aid kits, along with protocols for getting injured personnel to the nearest hospital, to accident investigation procedures.   Periodic safety training classes are given, and having trained personnel and a written safety program not only help to ensure a safe workplace, but they can result in lower insurance premiums for the company.

Many farms, even the larger ones, do not seem to have the same level of safety awareness or training.    For instance, thinking about the last farm that you have visited, do you know how many personnel are trained in CPR? Do you know how many first aid kits are in vehicles and buildings?  Do the personnel know what to do in case of an accident? Is there a written safety program?

Sadly, the answers to many of these questions might be surprising—in a negative way.   The safety culture that is often engrained on a construction site is frequently lacking on a farm, especially ones with small numbers of employees.    Given the difficulties in attracting qualified labor to many farms, it would seem that having a safety culture would be a “hook” for bringing capable employees into a farm situation. 

Working As A Volunteer For A Food Bank By Benedict T. Palen, Jr.

Here in America, many people are used to having all or most of what they want when it comes to food. For those who are reasonably well off, it may not occur to them that the lack of enough food is a daily issue for a fairly size able segment of the population.   Many of those folks in need rely on food banks for regular nutritional needs.

It is both a humbling and satisfying experience to volunteer at a food bank, and something that I would recommend, without hesitation, for people who can find 1-2 hours a week to help out.  Let’s be honest—we can find that small amount of time if we really want to make a difference.   Put aside the focus on oneself and do something for others. You will find it to be highly rewarding.

As a long time volunteer with charitable organizations, the memories that I will carry with me for all of my days come from the simplest acts of kindness—handing packages of food to those in need, and seeing their faces brighten up, and receiving a heartfelt thank you from them, or helping to sort food received in a food bank warehouse so that quality products were provided to its customers. 

This is simple stuff. It falls into the category of the little things in life that I have written about elsewhere. But it is these little things that help to give us meaning in our lives, and help us to maintain a perspective as we go about our daily routines.

Volunteers are always needed at food banks and other charitable organizations.  Check them out, and no doubt you can find one where there is a good fit.   You will find that you get back far more than you give of your time.

What Direction For Farmland Prices? By Benedict T. Palen, Jr.

It is clear that there are challenges for farmland prices, and that is causing concern among all sectors of agriculture.   A layer of uncertainty that was not much of a factor, say, 10 years ago, is the degree of capital put into this asset class by outside investors, and the fact that a large amount of dry powder resides with some of those investors, waiting to see where the market trends.

It would be fair to say that investors who put money into farmland over the past ten years have enjoyed outsized returns—as compared to long term historical averages.   And the question is whether that capital will still be attracted to the asset class now that returns are trending downwards, and much more in line with historical averages.   With the recent increases in yields on Treasury securities, one has to wonder whether farmland will maintain its appeal with some investors, and what impact that might have on land prices.

For most areas of the US, local farmers, and those closely associated with farming, have been the primary buyers of farmland.   That said, there are areas where investors have tended to dominate the market, especially on very large tracts of land.   With the diminished current returns on farmland, and the softness in the long term trends for land prices, will those investors abandon the market?  If so, what impact will that have if the liquidity aspect of the market is sharply reduced?

These are questions that will be addressed in later blogs. Suffice to say that anyone considering an investment in farmland has a number of things to consider that were not of significance 10 years ago.