Funds in Farmland

[SWMN native]

I wanted to start a discussion about this article.

http://www.agriculture.com/farm-management/finances-accounting/the-funds-are-calling

So, I can't decide what I think of this business model.  On one side, I could see a retail investor wanting a scaleable farmland investment, or, investment as you work your way to being able to buy your own land.

I originally thought the interviewee from Farmland Partners had a farmland ETF.  This didn't make sense to me, being that land is illiquid, and super-subjective to value on a day-to-day basis.  Looking deeper, It's a REIT, which I guess makes as much sense as a REIT owning an apartment complex, or a mall.    Will this catch-on?  Will they get scared-out the next downturn, and interest rates go up, where investors don't have to be so creative to make return?

It seems like land is one of the last things in farming not really done by Wallstreet.

The commodity ETFs I think would have a stabalizing effect, as they allow more smaller speculators.

[BA Deere]

I just wonder if they aren`t a little early to the party. Whether we want to admit it or not, farmland has been in a low interest rate bubble, also the commodity boom that helped finance it at inflated prices.  The bonds are pushing interest rates higher regardless of the fed, so do higher rates have legs? if so that can`t be good for land, <$50 oil it`s hard for grains to rally much above breakeven.  "cash doesn`t cashflow" if income on the farm isn`t there, that "extra 80" might have to be sold to buy groceries, too much of that and a more normalized interest rates and I wouldn`t be in a hurry to buy land.

But I think you look long term of 30 years and land is as good of investment as anything, it`s getting from here to there that`s the trick.  Maybe inflation will bail us out, who knows, but after inflation it`s always a hangover too. 

[JimMeade]

Over the years, doctors have invested in cattle ranches and so forth and it all shakes out in the end.  The doctor gets a tax break, but only by losing money.

My paranoia makes me wonder if it isn't one more camel nose in the vertical integration tent.  Get enough big money into enough land and they'll go like chickens and hogs.  Contract to Cargill and ADM, and partner with Monsanto.

[BA Deere]

Yes Jim, I can definately see that, but right now land is still priced at $7.00 corn (well $10.00 corn actually, alotta blue sky in the value).  But if the new achievable cash price of corn is a buck either side of $3, with the higher end being the breakeven, add to that higher interest rates and a mild "80`s shake out" I think those bargain basement prices will be the land buying opportunity.   If funds are already setup and new ill-gotten Wallstreet money can swoop in on the gift horse buying opportunity.

Large purchased tracts, so big that gravel roads would be taken out, BTOs that are out of a job could be hired to manage it, add in autonomous machinery and it will be a "brave new world". 

Years ago i read this book on the bonanza farms of Minnesota and the Dakotas, which is what i think of when i see these large opperations today.  One "family" in the heart of Iowa running 30,000 acres of corn and beans is much more impressive than the 100,000 acre North Dakata bonanza wheat farms of back in the early 1900`s

http://www.barnesandnoble.com/w/day-of-the-bonanza-hiram-m-drache/1100867435?ean=9780813419954#produ...

[SWMN native]

I have had some similar thoughts regarding vertical integration.

Where do you meet diminishing economies of scale?

Read into Farmland Partners' financials the other day.  So, Yes, they see oppportunities to also be a farmland lender, work with 

tennants to finance input, and bulk-buy inputs.

I don't know how a publically traded company is going to do holding farmland.  It seems to me, the "Hey, it might get rough for a decade or so." might not play so well in Wallstreet.  What if everyone wants out?  Suppose the REIT can sell land and do a return of capital?

However, if you're providing financing and supplies, next step is taking the weather and market risk, by having it custom farmed.  Then, well, might as well finish the vertical integration, and own the equipment.

[cumanj]

Just wonder how long they will be happy campers with 3 dollar corn for a number of years.  Still a lot of people who think farming will pop back and be wonderful forever.  History doesn't tell us that, unless the gov comes up with a new scheme like ethanol!