Here’s a juxtaposition I find deeply disturbing.
On the one hand, there have been a spate of recent news stories about the dismal circumstances of farmers in the United States.
Here’s one which appeared in Time this week: “‘They’re Trying to Wipe Us Off the Map.’ Small American Farmers Are Nearing Extinction.”
The article starts with the story of a Wisconsin family.
The Rieckmanns are about $300,000 in debt, and bill collectors are hounding them about the feed bill and a repayment for a used tractor they bought to keep the farm going. But it’s harder than ever to make any money, much less pay the debt, Mary Rieckmann says, in the yellow-wallpapered kitchen of the sagging farmhouse where she lives with her husband, John, and two of their seven children. The Rieckmanns receive about $16 for every 100 pounds of milk they sell, a 40 percent decrease from six years back. There are weeks where the entire milk check goes towards the $2,100 monthly mortgage payment. Two bill collectors have taken out liens against the farm. “What do you do when you you’re up against the wall and you just don’t know which way to turn?”
The macro view is just as harsh.
Chapter 12 farm bankruptcies were up 12 percent in the Midwest from July of 2018 to June of 2019; they’re up 50 percent in the Northwest. Tens of thousands have simply stopped farming, knowing that reorganization through bankruptcy won’t save them. The nation lost more than 100,000 farms between 2011 and 2018; 12,000 of those between 2017 and 2018 alone.
On the other hand, several similar investment funds are being pitched directly to consumers offering an opportunity to put money into farm land, with promises of enticing financial returns.
For example, take FarmTogther.com:
Invest in US Farmland
Preserve & Grow Your Assets
Build a Recession-Resistant Portfolio
Here’s the pitch.
Farmland has proven to be one of the most stable asset classes over the past few decades, and one of the highest yielding asset classes on a risk-return basis. Farmland is uncorrelated with virtually every other mainstream asset class, and it has proven to perform well during economic recessions.
We believe farmland is a bond-like equity investment product that offers investors upside potential while also mitigating downside risks, and we believe it is suitable for almost any portfolio.
Farm lands–notice they’re not talking about farms–are just another commodity. I doubt very much that farm lands are “one of the highest yielding asset classes” offering such “upside potential” unless you look past farming to “highest and best use,” more sprawling suburbs or gentleman farms of the future.
Now, if these investment groups were talking about funding low interest loans or other financial support for struggling farmers, that would be a different story. That investment would provide social benefits.
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Perhaps some community-minded financial types could find a way for it to make economic sense as well.
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Farm subsidies are another area that needs an update.
USDA offers low interest loans from 1.5% to 3.5%. https://www.fsa.usda.gov/programs-and-services/farm-loan-programs/index
They also offer advice on making changes to other crops or uses to make a farm more profitable. Farming is not easy, nor is managing animals. Feed costs, disease, weather damage, etc. Then there are evil giants like Monsanto who sell roundup resistant seeds to farmers, making them sign agreements that they have to buy their seeds only. Farmers in India got sucked into these agreements and it ruined their farms.
“one of the highest yielding asset classes ON A RISK-RETURN BASIS.”
The last five words of that sentence is the fine print that may require an accountant to parse.
Farmland values are historically extremely stable and have almost no risk. Farmland prices are very inert and do not fluctuate. Among that class of very stable assets — basically, things that don’t really appreciate — farmland is relatively high yielding. This is a bit like saying “The tallest hill in Kansas.” Meaning: it’s really just a place to park money that won’t take a big hit in a downturn. So this is not a development scheme to pave over paradise and turn Old McDonald’s farm into a subdivision with massive profits on the horizon.
But who would want to buy farmland just to own it and not to work it?
In the United States, people who sell real estate do not have to pay capital gains if they use the money to buy new real estate. Because you can sell your house and buy an equivalent house somewhere else, this makes Americans less reluctant to pack up and move to where the jobs are.
On the other hand, a billionaire can sell his Manhattan condo at the top of the market and not pay taxes … if he uses the money to buy farmland. He can then wait for a recession and the inevitable collapse of the urban housing bubble, and sell his farmland which has not lost any value. He then uses the funds from that sale to buy TWO condos in a depressed Manhattan real estate market.
Is there a connection between investment in land and the dairy farm failure cited? They are seperate. The farmer already owns the land, hence the mortgage. Passive investment n land drives up the price of land making this farmers land more valuable, and him wealthier. The increased price of land doesn’t enter into his costs. He gets 16 cents a pound for his milk, 1.28 a gallon. There are price supports for dairy. States, including Hawaii have milk boards. In Hawaii, when there was an increase in gas prices, dairy farmers cost for feed rose dramatically. They needed a small increase in the price of milk, to 35 cents. Their was opposition from Meadow Gold who claimed it was too high and they couldn’t sell the milk. Meadow Gold was the monopolistic purchaser of local milk. At 35 cents Meadow Gold paid $2.80 a gallon, it sold in stores at 100 percent mark up. Meadow Gold refused to buy milk from a big island dairy forcing him to petition for a price drop, which happened. He had to cut production by half. Prior to that there were 40 dairy’s operating in Hawai. At the end of this process there were 2. Another dairy on the big island broke with Meadow Gold, expanded and began processing their own milk, while growing their own feed. This led to environmental opposition because it was gmo corn. Global warming opponents generally target dairy because of cows release methane. Hence earth justice went after this dairy and shut it down. Yea we have problems. One is land investments, which is a completely unproductive investment and has the sort of social problems associatted with cigarettes. It does not hire anyone, produce anything and raises the cost of housing and crestes homelessness. We also have a farm policy that favor big farms, opposses things like dairy, and imposes disproportionate costs on small farmers.