This interview is also available on Spotify and Apple Podcasts.
Paul Pittman helps lead a company that he founded a decade ago that now owns about $1.5 billion of American farmland. Along with buying and operating farms for the past quarter century, Pittman has also worked as an investment banker in London, New York, and San Francisco. But he has never really left the family farm in the Midwest.
“I grew up in Illinois and around farming my whole life having graduated with a degree from the University of Illinois in agriculture,” Pittman, the founder and executive chairman of Farmland Partners, told American Farmland Owner.
Farmland Partners is headquartered in Denver, Colorado. It is a publicly traded real estate investment trust that manages farmland across North America.
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Pittman returns to the rural central Illinois area a half dozen times per year. And his company’s efforts also maintain his connection. Farmland Partners owns about 40,000 acres in Illinois, the largest holding of any state.
“Very high-quality farmland, of course,” he pointed out.
Pittman has seen how farm ownership has changed in some ways but not in other ways. Sure, the operations are very different. “The big change in row crop agriculture is the scale of the farmer.”
USDA research shows that the number of farms across the country and acres farmed is declining. The size of farms is increasing.
Number of farms in the United States
1935: 6.8 million
2023: 1.89 million (down 7% since 2017)
Acres of land farmed
But bigger farms don’t mean that one core aspect of agriculture has changed: Farming is primarily still family. “These are still family businesses. They’re very successful family businesses,” Pittman said.
“You know, we in the United States have the luxury of getting our food much less expensively than, frankly, anybody in the world. And it’s a very high-quality product at a very good price. And that’s because of that efficiency of that roughly 100,000 families who truly devote their full-time labor and effort to farming,” Pittman said.
So don’t call farming “corporate.”
“The idea that they’re corporate?” Pittman added, “…unless you think a corporation is a father and son who formed an LLC…for liability protection. They’re not corporate farmers. They’re just highly successful family operators.”
And when it comes to the immediate financial futures of those farmers, Pittman wants context. Yes, the USDA expects farm incomes to drop about 25% this year.
“It’s gonna drop,” Pittman said. “But it’s gonna drop from some of the most profitable years ever.”
He used a sports comparison to make his point. “Using a football analogy: Last year your favorite team won the Super Bowl. And this year they only won the pennant, so to speak. Does that mean that they had a 50% decline in success?” he said. “Well, yeah, maybe. But they’re still a great team.”
But the drop in income, regardless of context, will change farmer behaviors this year, Pittman believes. “It’s not a good thing. But it’s also not the end of the world.”
“We’re seeing lower commodity prices. And that’s putting farmers in some level of stress. So, I think the impact will be less equipment purchased this year than purchased last year. People will not invest as aggressively in what I call ‘yield enhancing doodads,’” said Pittman.
John Deere has announced reductions at two Iowa plants. A tractor production facility in Waterloo plans to lay off 300 of its 5,500 employees. And in Ankeny, where the facility manufactures heavy agricultural equipment like sprayers and cotton pickers, 150 of 1,700 employees will also lose their jobs, at least temporarily.
“Moving forward, we expect fleet replenishment to moderate as agricultural fundamentals normalize from record levels in 2022 and 2023,” said John C. May, Deere & Company Chairman and Chief Executive Officer, in a February earnings statement.
The company is not collapsing. Last month it announced that income declined eight percent from last year, but it still topped $1.75 billion.
The Deere & Company employee reductions could be part of the cutbacks/delayed purchases of “doodads” that Pittman discussed. “Whether that’s a piece of technology or a special fertilizer or some sort of special seed treatment,” Pittman said, “…because they’re not getting paid as well for that extra yield.”
Production isn’t the challenge. Demand is.
All these adjustments in 2024, Pittman thinks, could lead to more available farmland for sale. “You will see some land come back onto the market where there is a small handful of farmers that’ll really hit the wall in terms of distress.”
Farmland sales from those farmers in financial distress may reflect lower prices. But Pittman doesn’t expect a dramatic decline. “You’re not going to see big declines in high-quality farmland,” he said.
“You’ll see an occasional sale that’s got the stress attached. That may be a low number. But that’s because it’s stressed. More than anything else, the fundamental market will hang together. It’s what’s so powerful about the asset class.”
He offered a hypothetical example as he also urged people not to believe hype that land values will plummet this year. “I’m going to be a little bit of a contrarian. But I’m contrarian with the luxury of a lot of knowledge. You will see everybody reporting a decline. But that will not actually be true. Don’t fall into that trap,” Pittman said.
“Here’s what they’re actually reporting,” he explained in his land sale example. “Last year a farm sold for $20,000 an acre. This year a farm sold for $14,000 an acre. And it’s in the same county. So, therefore, farmland has come down $6,000 an acre off the 20. That’s not true.”
Pittman concluded,” What actually is going to happen is…last year there was a $20,000 sale. This year, there was a farm family in financial distress. And they decided that they need to strengthen their balance sheet. And they take the worst farm that they own – because they don’t sell their best farm. They sell the worst.”
That’s what most people would do in that situation, Pittman believes. “If you’re going to sell something, sell the worst farm.”
And the worst farm in this case also provides a reality check of prices. “Selling at $14,000…never would have sold it for 20.”
“The good stuff is not going to decline.”
