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Wall Street Buys the Farm

A new class of land barons takes control

Rising prices for farmland, doubling in a decade, have brought prosperity to a generation of farmers. Jumping on this trend is a passel of financial institutions, all of them eager to buy their own version of Green Acres. And that has some people worried. 

TIAA-CREF, the massive California teachers pension plan, and big insurers such as John Hancock now invest in farmland.  Pension funds own almost 700,000 acres, by one estimate.  Hancock Agricultural Investment Group manages 230,000 acres worth more than $2 billion, 40 percent of it for almonds, pistachios, walnuts and macadamia nuts, Asia favorites.  Swiss giant UBS’s farm portfolio more than doubled to over $400 million from 2010 to 2012.

By some estimates, Wall Street investors own $5 billion in farmland and are ready to plant $10 billion more in coming years.  In the next 20 years, half of all U.S. farmland is expected to change hands as the current generation of farmers retires.  That’s 400 million acres up for grabs, and Wall Street’s pockets are a lot deeper than Farmer Ben’s. 

“If they succeed in consolidating control over our land and infrastructure, this new class of land barons could imperil our nation’s food supply,” warns a report lamenting the Wall Street threat, published by the Oakland Institute.  Albeit that may be alarmist.  Production is at prodigious, record-breaking levels, with a surplus of two billion bushels of corn at year-end.

Steinbeck, too, would be mortified.  The author of The Grapes of Wrath, published in 1939, blamed Wall Street bankers for the Great Depression and filled his pages with images of heartless banks foreclosing on family farms.  “I want to put a tag of shame on the greedy bastards who are responsible for this,” he wrote when he was preparing to write the great American novel. 

Any parallel, however, ends there.  This time around, fears that Wall Street will fleece farmers may be far-fetched (and condescending).  If anything, farmers have the upper hand, thriving through the financial meltdown with low debt, rising land values and the twofer of strong crop prices and higher yields, thanks to new technology and techniques. 

Never mind grapes of wrath, this is “Kernels of Wealth.”  Just ask Farmer Ben.  “You’re dealing with the survivors here.  These people talk real slow, but hang on to your wallet,” says Benjamin Riensche, 53, a farmer in Jesup, Iowa, who tends to 11,000 acres, 60 percent of it for corn. 

The Riensche family has owned Iowa farmland for 160 years, and today it owns 5,000 acres and rents 6,000 owned by investors, including some privacy-prizing Wall Streeters.  When Ben was 19, in 1980, he bought his first 80 acres, his mom and dad co-signing the loan.  He paid $3,000 an acre, and a year later went to college at Iowa State to study agriculture.  By graduation, farming was on hard times and the value of his land had plummeted to $750.  His father “banished me from farming,” he says, and he went to B-school at University of Chicago and pursued a career in banking while farmland value continued to tumble.

He bought a low-quality farm in 1987 at only $500 an acre, then in 1993 he ditched banking and returned to farming for good, going on to buy a good-quality farm for $1,100 an acre, and then it was $2,000 an acre for the next one, and $4,000 by 2004.  The ultimate parcel arrived in 2012: “The trophy farm of my dreams,” Riensche rhapsodizes, a hundred acres just a mile from his house. 

“Beautiful earth, highly productive, 90th percentile land, wonderful topography, three-phase power running by it, paved road, two miles from an Interstate on-ramp.”  Riensche paid $15,000 an acre for it, and figures it has gone down in value 20 percent since; but he’s a long-term holder.  Unlike Wall Street.  “In 160 years, my great-great-grandkids won’t care what price I paid.” 

He bought his $1.5 million dream farm from a family with 13 grown children, factory workers and librarians and such.  They each walked away with over $100,000, enough to pay off a mortgage or ensure college for the kids.  “There was a windfall from this, I’m happy as a clam to have paid it,” says Riensche, who combines clichés in ways a sportswriter would relish. 

“You made out like bandits in the past five years,” if you sold, Farmer Ben adds.  Some farmers have done sale-leasebacks, a Wall Street-style move usually reserved for office buildings.  They pocket cash upfront and rent back their land from the investor-buyer, at a cost that typically runs one-third of their total expenses. 

Some have even sold, and then bought back their land after the price dips, just like with a Hollywood shop.  (Paramount CEO Brad Grey sold and bought back Brillstein-Grey Productions a few times.)

The year 2013 was a great one down on the farm:  Farms had net income of almost $130 billion on gross revenue of close to $445 billion, the U.S.D.A. says.  That’s a profit margin of 29 percent, compared with 5 percent or so for high-tech hardware.  But now corn and grain prices are falling, sending profits down more than 10 percent (to $115 billion) last year.  Farm profits are projected to fall a painful 32 percent this year, down to less than $74 billion (a 17 percent profit margin). 

Thus, Wall Street’s affection for farmland is belated, swooning just as farmland prices already have peaked.  “The consensus is that there’s going to be a mild correction” in land prices as prices fall for corn and grain, says David Oppedahl, senior business economist at the Federal Reserve Bank of Chicago.  “It does look like 2015 will see more of a downturn.” 

One upside:  If liquidity dries up as the Fed raises interest rates, things could get really bad, and some Wall Street investors may give up and sell out at bargain prices. Riensche and other farmers will be waiting to buy.  He owns only a single pair of the farmer classic, bib overalls, and he wears them for the effect.  “I put ’em on the day the Wall Street guys come to look at the farm,” he says puckishly. “We just throw in a few more ‘ya’lls’ and toss in a ‘cityfolks,’ and the more we do that, the more they think they’re in command.”