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Farmland strong inflation hedge

With the volatility in markets these days and increasing risks related to farming, “many landowners are scared,” says George Baird. “They’re asking should they be getting out, or are there real opportunities ahead.

“There is more uncertainty now than at any time I’ve been in this business,” he said at the annual meeting of the Mississippi Agricultural Economics Association.

Despite all this, says Baird, owner/operator of Land Management Group LLC, Collierville, Tenn., “Agricultural land continues to be an asset that many look on as a source of stability, and farmland values have been up for the past 22 years. In 2008, we saw the biggest returns ever from farming.”

The velocity of changes, the complexities involved in modern agriculture, economic uncertainties, weather, political uncertainties — all are factors that have an impact on farmland demand and values, he says.

The recent turmoil in the banking/financial arena has also had an impact on landowner concerns about agriculture.

“A farmer may have had a relationship with his local lender for years, but with all the changes that have taken place in the financial sector, that relationship may now be subject to a different set of rules, or that lender may not even be there any more.”

Third party risks also contribute to stress and anxiety —environmental issues, cap and trade, water issues, animal ID, other policy changes.

And in the Mid-South, Baird says, the continuing loss of cotton infrastructure as a result of the sharp cutbacks in acreage, weed resistance concerns, Asian soybean rust, and other problems have increased farming-related stress.

But, he says, much opportunity underlies the uncertainty and risks.

“With the huge demand for commodities worldwide and a limited amount of farmland and water, more people are looking at good farmland as an inflation hedge.

“With our good soils, favorable climate, water availability, there is a lot of opportunity in the Mid-South, and we’ve seen strong land values here since 1992. In the Mississippi Delta, we’ve seen a 56 percent increase in values, faster than almost anywhere else in the country.

“Only two areas in the nation saw no decrease in farmland values in last year’s economic downturn — one was the Delta (Mississippi, Arkansas, Louisiana), the other was the Central Plains (Nebraska, Kansas, and the Dakotas). The average for Mississippi land was $2,600 per acre, but some was as high as $3,600. It’s not unusual these days to see $150 to $200 per acre cash rent for property that is well developed.”

Over the past 15 years, Baird says, “We’ve seen an average 13.79 percent total return from row crops in this region, so it’s not hard to understand why a lot of investment groups are coming into the Mid-South.

“Land costs here are lower relative to most other areas of the country, we’ve got a long growing season and cropping flexibility, plus opportunities for development.”

Investors are also looking for joint venture and partnership opportunities with landowners, he says. “We’re also seeing more variety in land leases — flex/cash leases, 50-50 leases, and blended share leases, where the landowner shares some of the risk.

“I think we’ll see a continuing movement to feed crops in the Mid-South. Farmers can make big yields, and if they can store and deliver what they produce, they stand to realize a good return. We’re only growing about one-third of the corn needed by the Mid-South poultry industry, so there’s still opportunity to increase production.”

Tremendous increases in technology adoption have also helped farmers to increase production and reduce per-bushel costs, Baird says.

“There’s a lot of opportunity for more crops in this area, particularly vegetables. With major water issues in much of the west, there is pressure on farmers there to look elsewhere for opportunities.”

California growers, facing ongoing limitations on water supplies and higher costs for water, are already looking elsewhere for opportunities to move some of their production, he says.

“I think we’ll continue to see more development of farmland, with precision leveling, irrigation, etc., in order to better manage risk, increase production potential, and reduce per-unit costs.

“With growing populations, emerging markets, and changes in diet, there is increasing demand for agricultural products, and I believe there will be a lot of security in land ownership in the years to come,” Baird says.


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