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Farm-oriented REIT CEOs: Trade war to have no immediate hit on operations

Management teams at the two farming-oriented real estate investment trusts foresee no near-term negative impacts on operations from the trade tensions with China.

"It's an unknown, but the impact to us is going to be slight," Gladstone Land Corp. Chairman, President and CEO David Gladstone said on an Aug. 9 earnings call. "And the reason the impact is slight [on] us is, the farmer, while they may not be making what they wanted to make, the bottom line is they're going to pay their rent."

The trade war already has taken a bite out of prices for commodity crops such as corn, wheat, and especially soybeans, pressuring farm income and, by extension, land values. Gladstone does not expect his company's operations, which are oriented toward the production of fruit and vegetables, to be significantly hurt by any tariffs on foodstuffs, however. He said there will likely be "some kind of hit" on prices of cherries, apples and almonds, but Gladstone Land's tenants typically grow organic products, which are not usually shipped to China. Operations at present are "hunky dory," he said.

"As long as you've got a good farm that's got good dirt and good water, the [land] prices aren't going to go down as long as you're growing good crops like we're growing on ours. ... Sure, in two or three years, if we're still tied up in something like this, then it will have an impact. But nothing in the current quarters," he said.

The situation is by many accounts more challenged in the Midwest, where Farmland Partners Inc., oriented toward the commodity crops, is a significant player. While the prices of corn and soybeans have suffered, land values so far have remained stubbornly high good for landowners, but poor conditions in which to expand business.

On an earnings call, Farmland Partners Inc. Chairman, President and CEO Paul Pittman painted a favorable overall demand picture, which he cited in his explanation for the most recent uplift in cash crop prices. "It is a hungry world," he said. "All of these commodities will be consumed. We are generally entering a period of time with more orientation towards shortage than surplus."

Pittman said the trade tensions with China, in the near term, will only shift where the U.S. sells its product; Brazil may export more of its farm output to China, while the U.S. will export its product more widely. The trade war will not be a significant issue for Farmland Partners unless it drags on for multiple years and countries begin to build out their own infrastructure and production to meet their own needs, Pittman said.

"It's the five-year effects of the trade that I worry about the most, not the near-term effects. ... This idea that the trade war has completely hurt production agriculture is really a misnomer. All of us in agriculture want the trade war behind us. It's an export-driven industry. But it's not got immediate huge negative financial impacts as I think the popular press sometimes suggests," he said.