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Farmland Partners flags gains from plugging into energy markets

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Farmland Partners underlined the potential for tapping the renewable energy market, at a time when crop production offers limited returns prospects, as it unveiled solar power agreements on two eastern US farms.

The land investment group, which buys farms with the aim of exploiting rents and capital growth, said it had agreed with tenants at two farms in South Carolina that they could covert a total of 979 acres from farming to solar power generation.

The conversion, to be undertaken at the farmers' cost, will near-quadruple the rent that Farmland Partners receives from the land, to $822 per acre from $210 per acre, with the prospect of annual increases of 1.5% from 2021.

The deals, which have an initial 20-year term, come at a time when agricultural rents are in decline in many areas of the US, as weak commodity prices, which have also undermined the land market, force owners to accept reductions.

'Third year of negative returns'

Indeed, in the key Corn Belt state of Illinois, cash rental rates – which soared 77% to $234 an acre in the eight years to 2014 - eased by $6 to $228 an acre last year, according to the University of Illinois.

And a deeper decline is expected this year, as weak commodity prices maintain crop production as a loss-making enterprise.

"Current budget projections for 2016 suggest a third consecutive year of negative returns at average cash rent levels with corn prices below $4.00 per bushel, and soybean prices below $9.00 per bushel," said Nick Paulson, assistant professor at the university's department of agricultural and consumer economics.

"With the short-term outlook from the USDA suggesting that these lower prices levels will continue to persist, costs of production will need to be cut to achieve positive returns.

Land rents represent "one area where adjustments may need to be made," he added, flagging expectations for "rents to decline by 10% on higher quality farmland, and by around 12% on average-to-fair farmland".

Breakeven crop prices

A separate report this week from Iowa State University underlined the pressures on farmers' margins, pegging the breakeven corn price for a farmers planting the grain after soybeans, which fix nitrogen into the soil, at $3.99 a bushel.

That is above the $3.83 a bushel at which Chicago corn futures for December were trading at on Wednesday.

For a second successive corn crop, the breakeven price rise to $4.63 a bushel, thanks to extra nitrogen applications and lower yield prospects.

For genetically modified soybeans, the breakeven price is $10.67 a bushel at a mid-range yield for Iowa, the university said.

November 2016 soybean futures were trading on Wednesday at $8.87 ¼ a bushel.

However, the university's costs figures included a land rental cost of $266 per acre, without which farmers' production costs fall markedly.

'Upside rent potential'

Farmland Partners added that its latest solar deals meant it had renewable deals covering some 1,200 acres of its portfolio, which totals more than 100,000 acres.

This includes 28 acres put down to wind farming in the Carolinas.

Wednesday's contracts "further demonstrate the additional upside rent potential for non-ag uses we have on our farms", said Paul Pittman, the Farmland Partners chief executive.

"We continue to focus on developing supplemental revenue streams for the farms we own in order to increase returns for our stockholders."

Farmland Partners shares stood 0.3% higher at $10.57 in morning deals in New York.


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