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Urban sprawl drives up some, but not all, US farmland rent

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US farmland investors forecast a continued divergence of rental prospects, as returns in the Corn Belt ease, while rents in specialist fruit and produce land on the West Coast continue to rise.

The US real estate investment trust Farmland Partners was downbeat on US rental prospects, even as its latest set of results beat analyst expectations, and the company forecast another hefty rise in revenues next year.

"The company expects that farm rents will be flat or will modestly increase nationwide in 2017," Farmland Partners said.

"Some regions, like the Corn Belt, may see modest declines in rents, which will be offset by increases in rents in other areas."

Rising revenues

Farmland Partners forecast revenues for 2017 at between $42m and $47m, compared to the $31.0 earned in 2016.

Farmland Partners reported revenues of $13.33m over the three months to December 31, up 190% year-on-year.

And net income soared over the same period, to $6.51m, compared to $882,000 a year earlier.

Net income of $0.26 smashed analyst expectations, of $0.03 per share.

Tighter land supply

Meanwhile David Gladstone, chairman and chief executive of Gladstone Land, saw rents being supported by declining land supply.

Gladstone Land owns primarily fruit and produce land, which have a high rental value, with much of its land in California.

"I'd point to one thing that is driving the rental rates in our farms," said Mr Gladstone. "The amount of farms in these regions is relatively finite, and there are no new farms being developed in these areas.

'No more trees to cut down'

"The trend we continue to see in our growing regions is steady decreasing the number of farm acres as they are being sold and converted to suburban uses," Mr Gladstone said.

"There's no trees to cut down, no swamps to drain," he said. "There's just no more land that can be converted to farms."

In California, Mr Gladstone noted that some 100,000 acres had been lost.

The trend was supportive for rents in California, Mr Gladstone said.

Improving crop conditions

Mr Gladstone also reported that conditions for crops in California are "drastically better this time than last year," when the state saw a major drought.

"A year ago about 64% of the state's surface area was classified as being under extreme drought conditions," Mr Gladstone said.

"Now that figure has dropped to less than 2%."

"Because of precipitation totals are doubled the norm, wells, reservoirs and lakes across the state have been filled or recharged."

And demand for irrigation is supported rents, Mr Gladstone said.

"Farmers are following land where water is too difficult […] or expensive to obtain, driving up rents and prices of land with good wells and multiple sources of water."

Gladstone Land Corp on Tuesday reported net income at $83,035, or $0.01 a share.

This was down from $0.04 share a year ago, although it came above analyst expectations, which called for the company to break even.

Thumbs up for Trump

Mr Gladstone was upbeat on the new US administration, and its likely effect on farming.

"We are very optimistic that President Trump will work with congress toward the pragmatic solution to some the agriculture issues… including water supply, environmental regulations, and international trade."

He's already promised to eliminate the waters on the US rules, which restricts use by farmers of certain bodies of water"

"And he's appointed a pro-farming administrator of the EPA, and the same at the department of agriculture, so hopefully we'll see some good things coming out of Congress."

By William Clarke

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