That’s because when we buy a farm, we do so with the intention of holding that property for the long haul, building a relationship with a tenant, and letting the farm appreciate over the years to maximize investor returns.

But that doesn’t mean we never sell. In fact, the company has sold numerous farms in 2023 – more than $120 million worth as of Sept. 30.

So, why do we sell?

There are several reasons, including but not limited to, changes to a farm, area, or overall marketplace that makes the farm less appealing for the portfolio; an offer that surpasses our own internal estimates of an asset’s worth; the ability to help a tenant strengthen his overall business; and highest-and-best-use opportunities (e.g., other real estate development).

We’ve often said that farmland investing returns are two-fold: income received from tenants and asset appreciation gains occurring behind the scenes. Both buckets are driven by several factors, such as location, soil quality, and production history, and FPI clearly wants to maximize the appreciation and rental rates for all our assets.

That is why the company is constantly reviewing our farms’ past performance and looking to the future to determine whether we believe a property will continue to perform, or whether it might be riskier moving forward than first anticipated.

Paul Pittman, the Executive Chairman of the company, summed up this point well during FPI’s earnings call for the second quarter.

“[W]e are not selling our very best farms. We are selling farms where we are concerned of water challenges or market volatility challenges, or they are outliers for some reason in our portfolio,” he told investors. “We want to gradually concentrate this portfolio in ways that lessen water risk and lessen volatility of earnings to simplify the management of the business.”

FPI President and CEO Luca Fabbri referred to this strategy as “selectively pruning our portfolio” during the company’s third quarter’s earnings release.

This doesn’t mean that the farms sold are not productive, but their long-term risk might have changed since acquisition. For example, changes to water availability, specifically in California and the High Plains.

Of course, once farms begin to sell in our portfolio, word spreads, which can lead to unsolicited offers. Often, these bids are far higher than our internal valuation.

Whether these offers come from other institutional investors seeking to build a portfolio in a specific area, or local farmers seeking strategic expansion, we have a fiduciary responsibility to consider such offers and redeploy capital in a way that’s helpful to the company.

Offers might also materialize from buyers who have different ideas about how to use the farmland. While these highest-and-best-use opportunities are not our focus when choosing portfolio properties, the multiples on such transactions make them profitable for the company and its shareholders.

Finally, our favorite reason to sell a farm – a tenant looking to own the land they’ve been renting in hopes of scaling and improving the efficiencies of their own business.

“FPI wants to build lasting partnerships with tenants to generate profitability for them and our shareholders,” Pittman explained. “It’s a win-win, when we can make a profit and help a good tenant at the same time.”

The post Sometimes It Makes Sense to Sell the Farm appeared first on Farmland Partners.

If you’re ever on the Mermentau River farm in southern Louisiana, keep your eyes peeled.

In addition to 5,943 farmable acres, the property is an amazing wildlife habitat teeming with waterfowl and lots of alligators. It is prized as a duck-hunting haven. And, it has an interesting crop rotation that is unique to that area of the country – rice and crawfish.

William Currie, who oversees Farmland Partners’ assets in the Delta region, said the key to successful rice and crawfish production is water management.

Both crops need flooded fields for part of the year – hence the favorable wildlife habitat – and then need water removed at other times. This requires a sophisticated irrigation system.

“We’ve got two massive pumps on the bank of the Mermentau River that fills up a ditch system that runs many miles all over this farm so that we always have water,” he said. The system also helps drainage when necessary.

That isn’t the only improvement project on the farm. William said some parts of the property were in rough condition when Farmland Partners purchased it in 2021.

“We’re on a long-term improvement project out here and we’re partnering with our tenant to bring some land back into production, improve some fields that have been neglected over the years,” he explained. “It’s going really well.”

As part of the property improvements, Farmland Partners has teamed up with Ducks Unlimited on a land leveling project that will expand waterfowl habitat and increase ag productivity at the same time.

William said that the company also signed a longer-term lease with the tenant, giving him a vested interest to invest in maximizing the land’s production potential.

“We’re in this together,” William concluded. “We’re benefiting by increasing the long-term productivity of this farm.”

And by the looks of it, the wildlife may be the biggest beneficiaries of all.

The post Mermentau River Farm: A Wildlife and Agriculture Paradise appeared first on Farmland Partners.

According to the Fed, companies in those states are taking on fewer capital expenditures and are either slowing the pace of existing CapEx projects or delaying the start of pending projects due to economic uncertainty.

Why does that matter? Because CapEx is a category of expenses used to improve a business’ physical assets and add value by boosting efficiency or capacity. This kind of spending can provide insight into long-term business growth and economic health.

CapEx is especially prevalent in traditional real estate, which consists of buildings that are depreciating and must be improved to guard against age and rent erosion, as well as the land on which those buildings sit. The value of the buildings and their improvements typically far outstrips the value of the land.

Farmland is a bit different when it comes to CapEx, as Green Street Advisors explained in its 2021 report about farmland investing.

“Farmland as an asset class for the most part does not depreciate, and improvements in certain crops can be minimal and may require relatively low capital expenditures by the landowner,” they explained.

That’s because land, which doesn’t historically depreciate, dominates farmland investments and is responsible for the lion’s share of the value.

In agriculture, a farmer’s biggest costs are in equipment and technology, which are not tied to the real estate. Furthermore, many row crop farmers outsource grain handling, storage, and processing to local cooperatives and privately owned businesses, thus minimizing real-estate related capital costs that would be associated with on-farm structures.

That doesn’t mean farmland is CapEx-free.

Trees and bushes that produce crops year after year – like nuts and fruit – are capitalized and depreciated and require investment to maintain productivity. These permanent crop farms can be CapEx intensive while waiting for trees and bushes to mature.

And in row crops – such as corn, soybean, and wheat – capital investment in the long-term improvement and productivity of land can be a big differentiator between institutional land investors like Farmland Partners (FPI) and individual farmland owners who may have inherited property from a spouse or previous generation.

“When we buy a farm, we do so with the intention of holding it for a long time. We aren’t speculating on development potential or looking for a quick profit,” explained Luca Fabbri, the President and CEO of Farmland Partners. “In fact, we like to purchase farms that can be improved with a capital project. Improvements like irrigation systems, drainage tile, land leveling, and grain storage can generate positive returns for FPI, our tenants, and contribute to a stronger food supply system.”

Fabbri said that these kinds of investments are well understood by FPI’s farmer tenants and are often misunderstood by smaller landlords who may have little agricultural background.

“We have found that our long-term focus and capital resources can provide a competitive advantage in the farmland market,” he noted. “These projects are costly and take time to complete and show return. Not a lot of individual farmland investors have the patience, expertise, or capital to accomplish it.”

FPI’s portfolio in the Carolinas is a perfect example of its approach to CapEx improvements. The company purchased more than a dozen farms spanning thousands of acres there in 2014 and 2015. But the farms’ potentials were not being maximized.

FPI installed pivot irrigation systems and upgraded the drainage infrastructure on many of the farms to improve water management, which is essential for farming success. Additions of on-farm grain storage also aided the harvest and marketing capabilities for tenants.

“We added a lot of value to those farms, which has paid off throughout the years in asset appreciation and additional rent income,” Fabbri concluded.

And that’s the whole point of CapEx – to add long-term value for businesses and its investors.

The post Farmland and CapEx appeared first on Farmland Partners.

Meanwhile, food demand continued to grow as population and global wealth both increased. And the trend shows no signs of stopping, with the world projected to add 500 million people by 2030, based on United Nations’ analysis.

This unique supply-and-demand dynamic is one reason why the farmland market behaves differently than much of commercial real estate. Instead of peaks and valleys of traditional real estate values that mark economic changes, farmland tends to experience peaks and plateaus.

That is, farmland often appreciates at a high rate when the farm economy is strong, but it doesn’t necessarily retreat when economic times return to normal or when unique challenges emerge.

The volume of farmland transactions may decrease during economic downturns since most sellers want to list properties in the best possible environments. But fewer transactions do not necessarily mean reduced asset values.

In fact, farmland often gains value in tough years.

This phenomenon was on full display when the USDA released its annual report on farmland values in August. That report showed an increase of 7.4% in U.S. farmland values over the past year.

Similar results were reported by the Federal Reserve Banks of Chicago and Kansas City in August as well, citing 9% and 7% annual gains respectively.

Considering the fact that 2023 has encountered higher interest rates and drought conditions in much of the Heartland, this increase – albeit down from 2022’s blistering 12.4% annual appreciation rate – speaks to the health of the asset class.

In addition to supply and demand, farmland’s value appreciation strength is further helped by farmer incomes. Green Street Advisory Group commented on the topic in its 2021 look at farmland investing.

“Farmers’ income is a function of both price and productivity. Steady and growing yields from best-in-class U.S. farming operations have helped balance the fluctuation in commodity prices,” they noted. Plus, “the U.S. government deems the agricultural sector so essential to a functioning society that it provides support mechanisms to farmers, which provides another layer of income stability.”

As a result, there’s some insulation in difficult times.

Michael Lauher, a member of the Illinois Society of Professional Farm Manager and Rural Appraisers, recently wrote an article on this very topic for Farm Progress, looking at the historical impact of droughts on Illinois farmland prices.

“Except for 1931, for each year following a drought, Illinois land values increased,” he wrote.

Droughts have little downward impact on farmland because of crop insurance, government aid, and improved crop genetics, Lauher concluded.

Chart out U.S. agricultural land values since 1970 and cropland prices since 1997 (when the USDA began reporting data), and you can see this same phenomenon on a national scale.

Farmland values didn’t dip after Midwest droughts in 1988, 2005, and 2012. Nor did they fall off a cliff during the economic recessions from 1973-75, 1990-91, 2001, 2008-09, or 2020.

Yes, farmland prices did decline during the farm crisis of the ‘80s – a unique time when many agricultural businesses went bankrupt. But even then, it bounced back after a short time and continued appreciating.

Smooth it all out and you see an average annual appreciation of nearly 6% since 1970.

Are we entering another period of plateau, or will the peak continue? Only time will tell, but regardless of the outcome, we remain bullish on farmland – an investment class with a history of stability anchored in its finite supply and growing demand.

The post The Peaks and Plateaus of Farmland Values appeared first on Farmland Partners.

Sarff explained that demand for farmland has remained strong in virtually all regions of the country this year, and that the market has historically avoided extended periods of price declines thanks to its unique supply and demand characteristics.

MWA helps landowners in Illinois and Iowa track area values through its monthly Land Review report, which is available at www.murraywiseassociates.com. Sarff said he hopes to expand the Land Review to additional states in the future.

The full interview, which has been made available to radio stations across rural America, can be heard below.

Note: This interview contains Forward Looking Statements.

The post MWA’s Eric Sarff Discusses Farmland Values with Farm Broadcasters appeared first on Farmland Partners.

His popular Farm CPA Podcast is one of the primary vehicles he uses today to communicate, and Farmland Partners was thrilled to join his show.

During a recent interview, FPI Executive Chairman Paul Pittman discussed farmland investing, today’s farmland market, and a little about his background.

Check out the full interview below.

Note: The interview contains Forward Looking Statements.

The post FPI Joins the Farm CPA Podcast appeared first on Farmland Partners.

When you step foot on Ed Reams’ farm in Avoyelles Parish, Louisiana, you get a feeling of peace and quiet.

There are almost no developments nearby. There’s little noise to speak of except for wildlife. And Ed’s farm is vast, stretching as far as the eye can see – 7,273 acres to be exact.

“It might seem like we’re out in the middle of nowhere, but it’s a good location,” Ed told us during a recent tour of the property he’s leasing from Farmland Partners. “You’re sitting in a very unique, different type of area. You’re just on the edge of Cajun country.”

Cajun country has fertile soil, but farmland can require investment to maximize its potential.

The land Ed farms has undergone several improvements over the years, including land leveling and irrigation, and the result is a versatile farm that can grow lots of different crops. This year, Ed planted corn, soybeans and rice. In the past, it’s also supported grain sorghum.

But the biggest advantage Ed sees is the farm’s size. “You can come here and stay awhile…you’re not running up and down the road with equipment farming a bunch of smaller tracts.”

Ed has been in the business for decades and he knows how important contiguous acres are to driving efficiency in a farming operation.

Ed is a fifth-generation grower who has been farming on his own since 1977. His family has produced everything from cattle to tobacco and grain on farms in Kentucky, Tennessee, and North Carolina.

But Ed really likes Louisiana and he’s enjoying the relationship he’s built with Farmland Partners on the edge of Cajun country.

“They are willing to do whatever we need to do,” he said. “Of course they need to be profitable, but they’re very open minded on what things have got to be done.”

The post Visiting the ‘Edge of Cajun Country’ with Ed Reams appeared first on Farmland Partners.

Farmland is known for its historically strong returns, low volatility and ability to act as an inflation hedge. …

A handful of real estate investment trusts are providing wider access to farmland. Denver-based Farmland Partners, a REIT that not only owns and manages farmland but also makes loans to farmers, has an equity market cap of about $600M.

Executive Chairman Paul Pittman grew up in a farming family and began buying agricultural land as an investor in the mid-1990s.

“Farmland never really has a bad year,” he said. “I hate to sound trite, but did you eat today? Do you plan on eating tomorrow? What we are normally playing for in agriculture is the insatiable demand for food that grows with population and grows with worldwide wealth.”

Read the full article on Bisnow

The post Bisnow: Inside the Growing Real Estate Asset Class That’s a Favorite of Bill Gates, the Mormon Church appeared first on Farmland Partners.

You could see the pride in Wyatt Bolding’s face as he inspected the perfectly manicured rows of his 280-acre soybean crop in West Carroll Parish, Louisiana.

“I walk this field a lot to make sure it’s doing well,” he told us. “We’ve been blessed this year and the crop looks great. The beans are kind of jumping right now.”

Blessings were a theme that Wyatt – a twenties-something farmer who’s just getting started in the business – kept coming back to during our recent tour of his farm.

“Farmland Partners has been a blessing to me because they’ve given me an opportunity to grow my farm,” he explained. As a young farmer, “it’s just kind of hard to find ground, especially good ground.”

Without finding land of his own to rent and cultivate, his family’s farming operation wouldn’t have been large enough to support Wyatt’s dream of returning to the farm with his wife after college.

Getting into farming is difficult unless you’re born into it or you have mountains of money, he explained. And it’s still challenging even if you have deep pockets and an experienced agricultural family to lean on.

But it’s a challenge Wyatt embraces and knows he’ll overcome with hard work and a little help from people who want to see him succeed. In fact, he just signed a lease extension with Farmland Partners.

“That’s an answer to a prayer right there,” he concluded. “In life, I feel like everybody has a calling, and I feel like this is my calling.”

The post Prayers Answered: A Young Farmer Gets His Start appeared first on Farmland Partners.

Note: This interview contains Forward Looking Statements.

The post FPI President and CEO Discusses Farmland with Nareit appeared first on Farmland Partners.