Pittman: Farmland — a smart, sustainable investment

When a United Airlines plane carrying 100 people from Chicago landed in the nation’s capital in December, it became the world’s first commercial flight to operate an engine entirely with sustainable aviation fuel, or SAF.

For production agriculture, which continues to be dominated by family-owned enterprises, this feat reflects much more than a fun fact in aviation history. It’s emblematic of an influx of corporate investment in agricultural-backed sustainability initiatives.

From clean fuel projects to reduced greenhouse gas targets, many big businesses are promoting lofty goals. United Airlines, for example, vowed a 100% reduction in emissions by 2050.

Such attention is placing farmers, and their ability to sequester carbon and produce renewable fuel feedstocks, at the forefront of today’s sustainability movement.

Combine this with the fact that farmers maintain their core mission of feeding and clothing the world, and it’s easy to see why I remain so bullish on farmland values in America.

Unlike other kinds of real estate, cropland values in the United States have witnessed an almost uninterrupted rise in valuation over the last 30 years.

In fact, since 1997, U.S. farmland has appreciated at a compound annual growth rate of approximately 5%, based on U.S. Department of Agriculture data.

There are several reasons why. Very little new farm acreage is coming online, and land is sometimes shifted to other development. Meanwhile, there’s been steady growth in both crop demand and productivity.

Historically, increased farm productivity was a result of the transition to mechanization, improved weed and pest control, and nutrient applications.

More recently, growth has been driven by genetics, precision agriculture and improved farming practices — the key ingredients in sustainability. And these factors are expected to continue to fuel productivity growth for the foreseeable future.

Farmland also boasts characteristics that put it in a prime position to quickly pivot and take advantage of new demand drivers.

New equipment, technology and farming techniques can be deployed at a faster rate compared to other real estate asset classes where entire buildings need to be retrofitted or even rebuilt at tremendous capital expense. Plus, the federal government is usually a willing partner to help agriculture evolve.

The biofuel economic relief package that was announced by the USDA on Dec. 7 is just the latest example. It will provide up to $800 million to support biofuel producers, expand infrastructure for agriculture-derived renewable fuels and increase the use of higher bioethanol and biodiesel blends.

Dan Basse, a well-known economist and president of the Chicago-based AgResource Company, tried to quantify the impact of biodiesel expansion during a recent presentation to the American Seed Trade Association. He estimated that soybean oil production would need to double by 2024 just to meet expected demand.

That, Basse explained, would likely require new seed genetics and technology to boost extractable oil and enhance yields. Until then, an impossible 40 million more soybean acres would be needed to prevent new biodiesel plants from having to throttle back. For perspective, that’s an area slightly smaller than all the farmland in Illinois and Indiana combined.

Regardless of how agriculture ultimately meets the challenge — be it through better technology, shifting and expanding acreage, temporarily reducing refinery capacity, or an all-of-the-above approach — it is reasonable to expect a positive effect on land value.

Soybeans aren’t alone. Other commodities are in high demand. Corn, wheat, and grain sorghum prices have all risen over the past year.

The push for greener energy is providing other opportunities too. A March 2021 USDA report on renewable energy noted that wind energy leases are putting $289 million annually in the pockets of rural landowners, while solar energy opportunities have expanded 800-fold since 2008.

With this kind of runway, it is little wonder why our company, Farmland Partners Inc., is investing in cropland and partnering with top-notch growers throughout the country.

Paul Pittman is chairman and CEO of Farmland Partners Inc.