Farmland: (Some Of The Reasons It’s) The Hottest Commodity In The World
I‘ve not spent much time on a farm — I’m more the research library type. So when I saw the title of the NAR REALTORS® Conference & Expo “Farmland: The Hottest Commodity In The World”, I expected and got a new experience: a detailed tour of the economic and social contours of the business of farmland.
Our session’s guide for this market rundown was Randall Hertz of Hertz Farm Management, Inc., an Iowa firm dedicated to managing farmland in the US and Brazil. They have over 2,200 farms under management totaling over half a million acres.
The agricultural marketplace Randall portrayed had a bright future for land prices, to say the least. “Farmland is income forever,” he began. Some of the reasons he planted*:
- To support expected world population growth rates, farmers will need to produce more food in the next fifty years than in the last 10,000 years combined
- Oil prices on the rise bode well for corn-based ethanol market demand and corn prices
- Transaction volume rises coming on strong due to aging out: 42% of US farmers will retire within 5 years, and 44% of them have not indicated a successor
- Near-zero Fed interest rates driving near zero incentives to save, resulting in broader investment incentive
- China looms as a massive importer of food: has 20% of the world’s population but only 7% of the arable land. Chinese population migration patterns are overwhelmingly favoring urban areas with workers, adding to net food import demand going forward.
- In 2011, the world population hit 7 billion. By 2050, it’s expected to see 9 billion.
- The 2012 USDA Land Values Summary shows agricultural land values up in most states, with a downturn localized to the southeast
- Price upsides (and downsides) come with market instability. New agricultural land market instability factors loom, such as an impending decision in the Supreme Court concerning inter-state water compacts, which are very old agreements ratified by Congress and signed by the President deciding water use between states. A recent case pitting Oklahoma vs. Texas is expected to put the entire compact system on trial.
These and many other market factors took some time to get through, and it was a solid presentation, but something nagged at me. I was reminded of what it was during Q&A when an attendee asked for a comment about Monsanto’s policies concerning patented seed stock.
It was at that point I realized that at no time in the otherwise comprehensive presentation was any mention made of big agriculture – the Cargills and the ADMs and others whose contract farming operations make up a giant chunk of the market we were hearing about. And while Randall’s slides contained plenty of complaints about government policies – environmental, fiscal and other – I did notice a pair of pie charts delineating federal spending. I looked at the charts several times and at no time did I find any mention of the multibillion-dollar agricultural subsidy budget, from which Mr. Hertz’s home state of Iowa benefited to the tune of $1.3 billion just last year. Odd oversights for a Harvard-trained gentleman farmer, I thought.
* I promised myself to keep the farm jokes to a minimum yield. Sorry.