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From Horses to Trade Wars

This episode is also available on Spotify and  Apple Podcasts.

As a teenager in central Illinois, Cody Dahl envisioned a career working with horses. “I actually had the opportunity to work for some world-class horse trainers,” he told American Farmland Owner.

Perhaps, a future as a horse trainer. “I was making $500 a week and gas paid for. And what else could you ask for when you’re 18?

It turned out, his father had another ask. Although, it may not quite have been a request. The university professor wanted Cody to go to college or he was taking back the truck. Whoa! Message received.

Community college replaced horses. And several years later, Dr. Cody Dahl had a Ph.D. with a foundational commitment to the farmland that surrounded his youth. These days, Dahl is Vice President of Acquisitions for AgIS Capital, a Boston-based agricultural investment firm.


Dr. Cody Dahl Education

Blackhawk College, Kewanee, Illinois

B.S. in Agribusiness, Farm and Financial Management, University of Illinois

M.S. and Ph.D. in Food and Resource Economics, University of Florida

The adage from his days on a horse still applies: “If you fall off the horse, get back on.”  He just now applies it in different ways. Supply chains, commodity prices, and demand for exports have all recently fallen off the horse. Producers and investors want to know when everything will get back on again.

Here is a line that Dahl must explain to the curious: “Annual cropland total returns have exceeded permanent cropland total returns for the fourth consecutive year; permanent cropland total returns had exceeded annual cropland total returns during the previous nine-year period.”

That is a key passage in the National Council of Real Estate Investment Fiduciaries (NCREIF) 2023 4th quarter Farmland Return Index results. Corn and beans (like the ones that surrounded Dahl’s family in central Illinois) are faring much better than almonds and walnuts. It’s the flip of fortunes of permanent crops vs. annual/row crops.

Annual vs Permanent Cropland returns

“Since 2020, permanent crop returns have been less than stellar,” Dahl said as he evaluated the trend changes.

The trade war that former president Donald Trump escalated with China added to some permanent cropland struggles. Dahl talked about the difference before that escalation. “You had this growth coming out of China. And in general, it was kind of lifting up economic growth throughout the world. You had demand for nuts and other commodities rising. In California…had this period where the supply wasn’t keeping pace with demand.”

California producers had been flourishing. Dahl said, “We had a period recently from about 2009 to 2015 where the dollar just broadly fell in value.

The lower dollar made U.S. exports more affordable to foreign consumers. Dahl continued, “And we’re coming out of a global financial crisis. Economic growth was occurring. And prices just shot through the roof for…almonds and pistachios and walnuts…and windfall gains in many instances for those years.”

Those windfall gains encouraged producers to produce more. “And farmers and investors alike kind of plowed that capital back into almonds, walnuts, and pistachios,” Dahl said.

But the impact of the trade war and the dollar’s rise globally, coupled with the COVID-19 pandemic and supply chain bottlenecks bucked those trends like a stallion. Exports to China plummeted.

Nut producers typically export 60 percent or more of their production. But that changed. And American consumers don’t have the ability to increase their appetite to make up domestically for those lost exports.

So as those newly planted nut trees reached maturity and increased overall supply, they had no worldwide market to take them. “Almonds could maybe be your first crop in the fifth year…a small light crop,” Dahl said, “Walnuts are going to be a little bit later. Pistachios could be the eighth year.”

Dahl summarized the challenges that growth period presents for producers and investors. “So, you make these planting decisions under one set of circumstances and then it’s like a regime change in another. Now you have higher tariffs in China. You have a stronger dollar. And you have these supply chain kinks, where maybe the ports are on strike or the containers that are being brought in are shipping back to China empty…just a whole different set of circumstances.”

Foreign demand sunk while American producers’ supplies piled up. Not the desired outcome.

RELATED: The Office of the U.S. Trade Representative provides a timeline of tariffs impacting China. Read that here. 

“The annual income returns in 2020, 2021, 2022, and 2023 are among the five lowest annual income returns posted since the index’s inception in 1991. Further, capital returns during 2023 marked the fifth consecutive year of negative values,” read AgIS Capital’s analysis of the NCREIF 4th quarter Directly Operated Permanent Cropland Index.

That index posted its lowest annual total return on record last year (-5.00 percent).

The impact, Dahl, estimated, will be that some producers will decide that enough is enough. “There may be a lot of folks that are in that (older) age range…where it’s like…’Do I wanna weather this out or put the farm up for sale?’”

And that may depend on whether there is a younger, interested family member. “All of this is dependent on whether they’ve got a next generation to take over. But as you know in agriculture, the next generation…a lot of times, they’re not sticking around. We’re seeing transitioning happening right now.”

For those who stay in the business, they may decide that it doesn’t make economic sense to keep all the additional trees and bushes they spent years building up during that previous period of higher profitability. “If these plants are no longer the highest value…couple parcels of ground…they’re going to take them out of production…and do something else,” Dahl said.

But transitions don’t happen overnight. “As all that equilibrates, you’ve got an intermittent period where you don’t have very good returns. That’s what we’ve had since 2020. So now you’re talking about extending it going forward.”

If tariffs get even higher as threatened? Dahl forecasted even more hardship. “If there were countervailing duties (tariffs) that were pressed upon us by major export countries, even more than what they had previously, that would have a major impact on our crops. Major.”


American Farmland Owner Hayfields mountains


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