By Raising Productivity, Agtech Boosts Value Of Farmland
Jan 4, 2019
By Donald Marvin, Jan 4, 2019
Against the backdrop of the partial shutdown of the federal government, U.S. farmers and ranchers are no doubt looking for a happier new year in 2019. The burgeoning agtech sector could brighten things up by continuing to boost productivity and reverse the market setbacks of 2018.
Not since the 1980 embargo on U.S. grain exports to Russia have farmers been so pressured by the vagaries of global trade policy. The statistics are telling.
According to the USDA’s World Outlook Board, soybean exports hit by the retaliatory tariffs put in place by top importer China dropped in 2018 by about 11%. That has driven inventories to a record high of 955 million bushels, and pushed down prices. The USDA has calculated that tariffs cost U.S. soybean producers more than $7 billion during 2018 alone.
The Kansas City Fed’s credit survey of banks notes the “strain” on farms’ working capital across the 10th District’s plains and mountain states. The Minneapolis Fed reports that in the 9th District of the upper Midwest, the number of farms filing for Chapter 12 bankruptcy has doubled compared to five years ago.
Finally, according to the USDA’s preliminary estimates, net farm income in 2018 is down 12% from 2017 and, at $66.3 billion, is down nearly 24% from the prior 10-year average. Net farm income is down 46% from its record level reached in 2013.
Moreover, farmers are getting squeezed by a double whammy of decreasing revenue and increasing production costs. This market dynamic is a case study about the important and growing role that agtech will play in farmers’ future.
Farmers who have major capital investments in their operations can’t just sit idle to wait out bearish markets; a reliable, sustainable and profitable U.S. food and fiber system needs more tools to manage costs of production and more efficiency to maintain farmers’ margins, especially in today’s globally driven agriculture economy. That’s where agtech comes in. Bolstered by record investments by venture and private equity firms over the past couple of years, agtech companies are well poised to deliver on the needs of the local farmer and the global ag economy.
Advancements in agtech are providing ways to better strategize about what to plant and when, and to better manage the costs of inputs, labor, harvesting, storage, transportation and processing.
But the real value of the solutions emerging from this space is in a longer-term, bigger play, namely, that increased productivity is an economic catalyst to land value appreciation.
"Appreciation in the value of an acre of land is directly correlated to the profits that can be earned from that acre," according to Bill Lapp, president of Advanced Economic Solutions, an Omaha-based agricultural commodity analytical firm.
True, productivity is not the only factor: low interest rates have driven a price surge in most fixed asset classes. At urban peripheries, land demand for suburban expansion is another factor. But the biggest determinant of farmland value remains the potential profit it can generate as farmland. And productivity gains directly flow into higher profits.
Farm real estate is typically a farmer’s most valuable asset, accounting for about 80% of U.S. farm total assets. That is especially important to family farms as they are passed on to a next generation. Farmers also use their land value to get essential loans that see them through inherently seasonal cash flow.
Despite market disruptions, depressed commodity prices and lower farm revenues, farmland values nationwide have been steady since the crop price highs of five years ago. That's the silver lining to any shorter-term clouds hanging over the farm economy.
Looking forward, advancements in agtech will continue to be capitalized into farm balance sheets, playing a major role in helping agriculture ride out short-term storms of commodity price volatility.
"Widespread adoption of technologies that have increased output per acre, as well as reducing production costs, have been the primary catalyst for rising land values in the U.S. and globally," said Lapp. "These include seed technologies that increase yields, precision application of inputs and utilization of water conservation methods, to name a few."
Arable farmland is a very scarce commodity, and there's no more of it being made. Agtech can make our mostly fixed land supply more productive. This is good news for farmers — and for consumers worldwide.
For more information about this article, please go to:https://www.forbes.com/sites/donaldmarvin/2019/01/04/by-raising-productivity-agtech-boosts-value-of-farmland/