The Coronavirus and Farmland

It’s been a surreal world for the past few months with the coronavirus impacting our lives in many unexpected ways since the beginning of 2020. While the pandemic has certainly affected us on a personal level, it has also had a large and broad effect on the agricultural industry. Besides the meat industry, ethanol has been impacted by 20-year low oil prices and lower prices at the gasoline pump – causing corn growers to get a little nervous and ethanol plants to close. Yet the coronavirus has had a much less dramatic effect on farmland prices.

There certainly have been changes; I have seen more private treaty sales in proportion to total sales and a reduction in live auctions with various states “Shelter-in-Place” orders. Considering these orders, more auctions are going online, and I expect that trend to continue to grow. Despite a reduction in auctions and an increase of private treaties, I haven’t seen a great change in land market prices.

On the other hand, the volume of land transactions has definitely been down compared to this same period last year, which in combination with historically low interest rates, help to explain the stable land values. And, while we most likely will see cash rents dip slightly this year, compared to bonds and other forms of fixed income as well as equities, farmland should be relatively cheap from a ROI perspective.

Having said that, I do not, however, expect to see a great rally in farmland prices this year. For row crop farmland to realize a substantial price improvement, we first need to see a dramatic bump in the grain market.

Now, with that in mind, here is where I might surprise you. I am very bullish on farmland long term.

This does not mean I am bullish on commodity prices in the near term. Trade tensions with China do not seem to be improving and may in fact have been exacerbated by the circumstances of the origin of the coronavirus. Also, from what I have seen this month on crop tours, I do not expect there to be a bullish case for grain coming from the supply side. However, long term there is a strong case that can be made for higher commodity prices. This includes not only the growing population, but the growing demand for high quality foods in developing nations. And, most of all, the bullish case for commodities comes from near zero interest rates around the globe and the possibility of increased inflation.

Near term, I do expect farm incomes to take a hit and cash rents to fall this year. But, with current monetary policy and eventual growing demand I see any dip in farmland values as a buying opportunity. Many investors have been flocking to gold recently as an inflationary hedge, however, in contrast with gold, farmland historically has tracked inflation better, offered annual income, and lenders will give you an extremely low interest loan to go buy a farm.

We haven’t taken the coronavirus crisis lightly, but I am looking forward to putting 2020 in my rear view mirror. I expect this to be a tough year for farmers and I expect to see farm incomes hurt and cash rents fall a bit, but I remain optimistic about the future and resiliency of the American farmer and their job to feed the growing population of the world with quality products. And it is with this optimism I leave you.