Research plays a crucial role in all phases of our investment process from acquisitions to property management to dispositions. Our research publications are used to educate potential investors, while keeping our current clients informed of topics relevant to their portfolio.
All of our in-house research publications are accessible to the public.
U.S. farmland properties returned 6.2 percent in 2017, 90 bps below 2016 returns, continuing the downward correction that began in 2014. U.S. Annual cropland properties returned 4.75 percent in 2017 (4 bps above 2016 levels) while permanent crop properties returned 8.14 percent (199 bps below 2016).
U.S. farm sector profitability is expected to improve in 2017 for the first time in four years. USDA forecasts net cash income for 2017 at $96.9 billion (up 3.9% from 2016), while net farm income is forecasted at $63.2 billion (up 2.7% from 2016). Meanwhile, the farm sector debt-to-equity ratio is expected to move slightly upward from 14.49 in 2016 to 14.52 in 2017, largely driven by an increase in real estate debt.
The potential impacts for U.S. farmland owners of the federal tax reform signed into law at the end of 2017 should, in general, be favorable. The reduction in the corporate and individual tax rates is likely to lead to more disposable income for U.S. consumers and businesses to spend on food and agricultural products, increasing domestic demand, and potentially leading to rising prices. However, the tax bill is likely to lead to higher domestic inflation, which could place pressure on the Fed to increase interest rates at a faster clip. This could have the impact of strengthening the USD versus other agricultural producing countries’ currencies, which would impact U.S. exports negatively. Overall, the boost in domestic demand is likely to outpace the reduction of U.S. competitiveness in the export market, and the U.S. farmland market is likely to benefit from tax reform, at least in the short term.
In 2017, farmland properties in Texas, Florida, and California experienced significant casualty loss from hurricanes and fires. In Texas and Florida, Hurricane Harvey and Hurricane Irma were accompanied by high winds, torrential downpours, and catastrophic flooding during harvest season. In California, unusually severe fires in Napa and Sonoma counties destroyed numerous acres of farmland. This research brief examines the impacts of these catastrophic event on a global farmland portfolio and discusses strategies to mitigate the risk of casualty losses.
Based on the historical performance of eight crop types in the NCREIF Farmland Index, we demonstrated how farmland portfolios can be optimized to most efficiently deliver targeted expected returns or targeted levels of expected risk. Farmland portfolios often contain a mix of crop types. Some properties produce annual row crops such as corn, soybeans, rice, cotton, and wheat. Other properties are comprised of orchards and vineyards that produce so-called permanent crops such as almonds, pistachios, walnuts, and wine grapes. Optimal diversification among these different crop types can be used to design portfolios that deliver the highest
expected returns for a targeted level of expected risk, or the lowest expected risk for a targeted expected return.
Cotton acreage up 2.1 million acres (20.8%)
Soybean acreage up 6.1 million acres (7.3%)
Corn acreage down 4 million acres (-4.3%)
Wheat acreage down 4.1 million acres (-8.2%)
Rice acreage down 0.5 million acres (-16.5%)
HAIG has a long history of providing clients with best-in-class farmland investment management. Our clients’ farmland investments provide exceptional returns to meet the current and future financial obligations of their beneficiaries. However, this is not HAIG’s only contribution. As one of the largest institutional farmland investment managers in the United States, HAIG also plays a major role in improving the environmental conditions of the farmland assets we manage and positively influencing the communities in which we operate. One prime example of HAIG’s positive impact is the transformation of Siskiyou Red Rock.
HAIG is pleased to announce the acquisition of its long-time property management partner, Farmland Management Services (FMS). The transaction, completed in March, formalizes a relationship of more than 25 years, bringing together farm-level operational expertise and institutional investment management in a single organization. FMS, based in Turlock, California, will continue to provide best-in-class farm management for more than 280,000 acres of HAIG client properties throughout the U.S. In addition, through the enhanced alignment of the groups, the combined team will further develop robust acquisition, risk management and stewardship programs.
U.S. farmland properties returned 7.1 percent in 2016, 326 bps below 2015 returns and continued the downward correction that began in 2014. U.S. private farmland investment returns fell 326 bps from 2015 and over 500 bps since 2014, largely driven by three factors: commodity prices, farmland values and on-farm profitability. Four consecutive years of strong production have led to increased ending inventories of crops in the U.S. and declining prices. The significant decline in commodity prices has led to lower on-farm cash receipts (revenues), which, in turn, has led to a decline in on-farm profitability, despite a decline in production costs. The drop in commodity prices and on-farm profitability has led to a decrease in farmland values. As a result of these three factors, farmland operating income returns have declined from 7.9% in 2014 to 5.2% in 2016 (270 bps), while land appreciation returns have dropped 4.5% in 2014 to 1.9% in 2016 (260 bps).
U.S. farm sector profitability is forecast to decline for the third consecutive year. USDA forecasts net cash farm income for 2016 at $90.1 billion (down 14.6% from 2015), while net farm income is forecast at $66.9 billion, down 17.2% from 2015. If realized, 2016 net farm income would be the lowest since 2009. Meanwhile, farm sector equity is forecast to decline 3.1% from 2015 to $2.5 trillion, farm sector assets are expected to decline 2.1% and farmland debt is forecast to rise 5.2% from 2015, pushing farm sector debt-to-asset and debt-to-equity higher.
