Thursday, June 05, 2008

OK - here they come...

Just in time for a mess of Boomers to exit the business, well-heeled buyers for all levels of farm production are at hand. We've successfully poured ethanol on the fires of consolidation, and I believe new entities at the production level will soon emerge. Until now there has been only modest interest in owning production and origination capacity as an investment, but as farmers fret whether the good times can last, investors with longer vision are voting with their checkbooks.
But a few big private investors are starting to make bolder and longer-term bets that the world’s need for food will greatly increase — by buying farmland, fertilizer, grain elevators and shipping equipment.

One has bought several ethanol plants, Canadian farmland and enough storage space in the Midwest to hold millions of bushels of grain.

Another is buying more than five dozen grain elevators, nearly that many fertilizer distribution outlets and a fleet of barges and ships.

And three institutional investors, including the giant BlackRock fund group in New York, are separately planning to invest hundreds of millions of dollars in agriculture, chiefly farmland, from sub-Saharan Africa to the English countryside.

“It’s going on big time,” said Brad Cole, president of Cole Partners Asset Management in Chicago, which runs a fund of hedge funds focused on natural resources. “There is considerable interest in what we call ‘owning structure’ — like United States farmland, Argentine farmland, English farmland — wherever the profit picture is improving.” [More]
While most farmland is in strong hands, it is also subject to continuous turnover. The presence of top-bidding buyers in any local market is already one reason we try so hard to hear about land for sale before anyone else. Any tenant who hasn't asked his landowners to be told first is taking a whacking chance, IMHO.

The increased capital needs, significantly higher profit levels, and escalating risk in production agriculture will encourage the same forms of business as other sectors. We may look back a generation from now and date the disappearance of the traditional family farm from the 2006 October price explosion.

Things begin, things end. And to expect one business model to succeed in every business climate is unrealistic. Family farms are a relatively recent idea when you look at our 10,000 year history. While many see them not just as a good economic answer, but as the most moral form of agriculture, there is no reason to believe other forms could not keep or even lift such standards. People and their actions determine such qualities, not business plans.


Bill Harshaw said...

I don't remember you writing about your conception of the "traditional family farm"? I'd guess you're talking something like--blood relatives residing on the land and providing the vast majority of labor, management, and capital, regardless of whether they're a partnership, joint venture, corporation? But where are the boundaries?

Anonymous said...

I would say, but would not care to argue, that the TFF disapeared a generation ago. This last generation lived on fumes.

John Phipps said...

bill, anon:

I like the TFF acronym - let's go with it. I've never been crazy about the phrase myself since it seems to be defined as whatever the speaker/writer wants it to mean.

I agree that when we started sending the women off to work (pretty much the boomer generation), the TFF changed forever, and many men didn't realize their hobby was being funded by a nurse/teacher/etc.

Today the definition is also complicated by the agrarian/industrial splt. I would admit that for most popular concepts of a TFF the agrarians come closer to the ideal than family operation like Jan and I and Aaron. But who the heck cares? Mostly it was an attempt to seize the moral high ground, but I think the time is better spent formulating a business model to cope with a capital (not labor) intensive operation.

The odd thing is our operation would fit most TFF definitions and I prefer not to describe it that way. It strikes me as code for "entitled"

Bill Harshaw said...

I disagree--I think the Amish fit the TFF pretty well, not that I have any first hand knowledge. And as far as I know they're still expanding their operations.

I think John's right about the TFF needing to be pretty much full time farmers. And I'd draw the implication that any operation that has a "business plan" and separate accounts for living expenses versus farming expenses is in danger of not meeting the TFF criteria (for whatever that's worth).