"If the world runs out of corn, soybeans, or beef, that’s a big problem. If the world runs out of tomatoes, nobody really cares.”
Farmland Partners, the Colorado-based agricultural real estate company, is diversifying its land portfolio, but remains committed to commodity crops.
In the second quarter of 2015, the company added 19,156 acres to its portfolio after purchasing 25 farms in eight states. While some were small deals—$1.4 million for 169 acres across two Illinois farms—others were considerably larger. The biggest acquisition of the quarter? An eight-farm deal involving almost 15,000 acres in three states for $80.9 million in cash, stock and operating partnership units.
The company also posted $145,000 in net income for the quarter ending June 30, which represents a significant increase over last year, when Farmland Partners lost $542,000 in the second quarter.
"This was an outstanding quarter which was marked by tremendous growth, as we closed over $100 million in acquisitions across the country,” said Paul Pittman, Farmland Partners’ CEO. “We capped our record quarter by putting our first permanent crop farm under contract, while entering into a new region and state."
What state is Farmland Partners interested in but wary of entering? California, with more than $21 billion in agricultural exports in 2013 and a historic drought in 2015.
“It is a place where we are exercising a lot of caution,” Pittman said. “… We are very happy we do not have any assets in California due to the water crisis.”
Specialty vs. Commodity Crops
Farmland Partners’ recent deals include two blueberry farms in Michigan, but Pittman said those deals have a very specific purpose in Farmland’s strategy.
“We view specialty (crops) as a dampener to volatility on the rest of the portfolio, not as an independent huge value creator,” he explained during a conference call. “We’re not saying (specialty crops) are bad investments, but on a risk-adjusted basis, we actually like the row crops. It is a safer bet because of the fundamental scale of that business, the fundamental number of acres available, and how important it is in the global food chain. If the world runs out of corn, soybeans, or beef, that’s a big problem. If the world runs out of tomatoes, nobody really cares.”
Pittman also expressed a long-term view on the question of rents. The company expects to see its first significant rent negotiations in fall 2016.
“We’re not really very worried about this rent roll issue,” said Pittman. “Our perspective is that under virtually any economic scenario, we will either have flat or increasing rents in those discussions … Ignore the underlying commodity prices. Is the underlying demand for the good still intact? If it is, you are going to drive increasing land values and increases in rent over time, with flat rents being your worst-case scenario, not your midpoint.”
In the second quarter, average annual rents for Farmland Partners rose $1 to $361 per acre.