Farmland Partners receives calls frequently about potential acquisition opportunities – from agents representing for-sale properties, farmers or heirs looking to liquidate, and even other institutional investors interested in reallocating capital.
FPI passes on a lot of these opportunities.
That’s because we primarily focus on farms with prime soil quality, water availability, market access, and climate conditions. In other words, farms that don’t change hands often.
And in today’s higher interest-rate environment, FPI has become even pickier about what properties join our portfolio. The ones we’re currently prioritizing are parcels contiguous to or near other FPI farms.
Paul Pittman, FPI’s Executive Chairman, described the strategy to shareholders on a recent investor call.
“Our posture on acquisitions for this year, given high borrowing costs, is that we are largely limiting our acquisitions to add-on properties either literally adjoining or very close to a place where we already own a farm,” he explained. “When a great opportunity comes up to expand one of the farms we already own, we’ll almost always want to do that, assuming the price is fair because we believe firmly that increased scale adds to the profitability of our farmers and therefore, to the amount of rent that we can charge on those farms.”
The approach of building acreage blocks consisting of multiple farms was on full display in Q1 2024 when FPI added two farms in Mercer and Rock County Counties, Illinois. Those acquisitions helped the company amass nearly 7,500 acres in a 10-mile radius in a fertile corn and soybean farming region.
With adjacent and nearby parcels, the logistical challenges associated with having to farm multiple plots scattered across several counties significantly diminish. For example, being able to make long passes in tractors across multiple connected farms without the hassle of hauling equipment to a patchwork of fields saves time and fuel. Not to mention reducing wear and tear on equipment and lowering maintenance costs.
It’s also a major time saver during harvest time when removing a crop from the field and transporting it to a storage facility before marketing.
Contiguous farmland can also lead to improved agricultural yields. With larger consolidated plots, farmers can implement more consistent farming practices and better manage land treatment and crop rotation. Such uniformity helps in optimizing the use of inputs like fertilizers and pesticides, leading to more effective farming and potentially higher crop productivity.
As one would expect, time savings, lower production costs, and higher yields translate to higher returns for landlords like Farmland Partners. As Pittman mentioned to investors, this comes from higher rental rates, as well as the caliber of tenant such land attracts.
Top-tier farming operations – those with strong balance sheets and access to capital, years of farming experience, preferred input pricing, sound risk management plans, and geographic reach to help offset isolated weather and pest problems – are typically the farmers best equipped to manage large tracts of land efficiently. And these types of tenants are less likely to default on rent, leading to steady and predictable income.
This is especially true considering that desirable land and large acreage plots can help ensure that the landlord also receives personal guarantees and a first lien security interest on the farmer’s crop.
In addition, there is another, less obvious, benefit to owning neighboring parcels, according to Pittman.
“When it comes time to sell land, having numerous farms nearby opens us to a much larger pool of buyers,” he said. “Large investment vehicles seeking big swaths of farmland may be interested in the entire land block we’ve put together and willing to pay a premium for it. Or it may prove to be more valuable broken back into smaller parcels and sold to area farmers who are looking for incremental growth of their own land holdings. The key is that it gives us a lot of flexibility when it comes to negotiating the best transaction for our shareholders.”
Note: This article contains Forward Looking Statements.
