Farmland Partners, unveiling a fall into the red fuelled by costs from a land-buying spree, forecast land rents holding steady despite the drop in crop prices – a recipe academics warned will lead to farm losses.
Paul Pittman, the founder and chief executive of Farmland Partners, which buys land for leasing out to farmers, acknowledged the drop in prices of crops, with corn futures standing near four-year lows in Chicago, on a front contract basis.
However, "the farm economy remains very strong due to high productivity and the general strength of farmers' balance sheets coming off of several very profitable years," he said.
"We believe that values and rents for high quality farmers, like the ones in our portfolio, will hold stable, if not moderately increase."
The forecast tallies
However, with crop prices lower, rising land charge would push farmers further into the red, foreseeing losses of $46-81 per acre for Illinois corn growers, also facing higher costs than historically for the likes of pesticides, seed and machinery.
Cash rents in Illinois look like returning to levels equivalent to well above 30%, as a proportion of corn revenues, in line with that from 2000-2005, but which "will result in farmer losses due to higher non-land costs from early-2000s levels," University of Illinois farm economist Gary Schnitkey said.
"The negative returns point to the need for adjustment downward in costs, including cash rents."
Farmland Partners issued its forecast as it unveiled a loss of $541,668 for the April-to-June quarter, compared with earnings of $496,946 a year before.
While revenues rose 24% to $700,965, reflecting the increase in the group's land portfolio, which exceeds 25,000 acres, including two unfinished Arkansas deals, its costs soared, swollen by its acquisition drive, and relating to being since April 11 a listed company.
Total costs soared to $1.04m, from $67,385 the year before, with acquisition and due diligence costs jumping from negligible levels to more than $60,000, and general expenses rocketing from less than $8,000 to nearly $750,000.
Mr Pittman added that "this was a very important quarter for Farmland Partners.
"We entered the public stock market, and we deployed capital raised in the offering quickly and efficiently."
The group two weeks ago, through a share sale, raised a further $46m which it said would enable continued expansion into fresh areas of the US, and diversifying its portfolio.