The trade tensions roiling crop prices in the global marketplace will eventually take a bite out of U.S. farmland values, creating an opportunity for well-capitalized buyers, according to experts.
Land sales are typically slow during peak summer growing months, but a significant amount of farmland could hit the market this fall and winter — more than it did so in previous years. Persistently low crop prices stemming from trade turmoil with China likely will force many smaller players with weak cash positions to sell or enter into sale-leaseback deals. Margins are shrinking in the space, and credit is drying up alongside farming income, a key factor in farmland valuations.
At the same time, many buyers, including both small-scale owner-operators and institutions, will be cautious in the face of potential further downside.
"The longer trade issues depress commodity prices, the more caution there will be in the land market," Randy Dickhut, senior vice president of real estate operations for Farmers National Co., said.
The trouble and uncertainty that has befallen U.S. agriculture has captured even the president's attention. The Trump Administration recently laid out a program, to be funded by the Depression-era Commodity Credit Corp., to assist U.S. farmers by buying up their crop yield, reportedly the first time the program's funds have been used to soften losses from trade.
Organizations representing landowners and farmers both applauded the administration for coming to the groups' aid and chastised it for stirring up trouble in the first place.
"We are grateful for the administration's recognition that farmers and ranchers needed positive news now, and this will buy us some time," said Zippy Duvall, president of the American Farm Bureau Federation. "This announcement is substantial, but we cannot overstate the dire consequences that farmers and ranchers are facing in relation to lost export markets."
Farmland values vary across regions and crop types, and some of the more profitable tracts today, particularly in markets with proximity to urban areas in California and the Pacific Northwest, may see relatively shallow dips and quick recoveries. But few if any niches will remain completely unscathed by trade tensions with China, a dominant importer of U.S. farm output. Cash crops in the typically stable Midwest region will be particularly hard hit. China accounts for more than 60% of all U.S. soybean exports.
Ray Brownfield, managing broker and owner of Land Pro, an Illinois-based real estate brokerage and farm management company, said a handful of massive farmland-focused funds are in the market now looking for opportunities. But even the largest players are acting very cautious, he said.
"We're all kind of sitting in limbo," Brownfield said, referring to the trade tensions. "We just don't know for sure."
The two farmland real estate investment trusts may also find opportunity. Gladstone Land Corp. has been acquisitive this year, expanding its fruit- and vegetable-oriented holdings with a $37.4 million portfolio purchase in South Florida. In a recent interview, Farmland Partners Inc.'s CEO, Paul Pittman, cited the strength and resilience of farmland values in the Southeast, given the relatively low supply and alternate-use cases for the land in the region, but said the company's expansion may be limited in the near-term as a result of the steep fall-off in the company's share price.
Wendong Zhang, assistant professor of economics at Iowa State University, said trade tensions, combined with rising interest rates, will put "double-downward" pressure on land prices. But there is typically a lag of at least a year before significantly lower crop prices manifest lower land prices, and the finite nature of land supply also will likely help buoy prices to a degree, he said. Only a small percentage of U.S. farmland is on the market at any given time.
"The trade impact will definitely have a toll," Zhang said. "But so far, the real pain hasn't been felt, because of the seasonality," he said, noting China's reliance on Brazilian soybeans in the Northern hemisphere's summer months.
Dickhut, of Farmers National Co., noted that most buyers of farmland tend to take a longer-term view of the market, and near-term price isn't always the main consideration in a prospective deal. Proximity to current operations, or added efficiencies, could justify a purchase of a particular piece of land on its own.
Still, Dickhut acknowledged a definite caution in the market at the end of July that did not exist in the spring.
"There's a lot of questions this year, but I think the mood definitely has turned cautious in farm country," he said.