Is Farm Land a Commodity or Family Heirloom?

• US farmers are turning down extraordinary offers for their farm ground based on the age-old idea of “family farms”.
• However, we also read countless stories about how US farmers are struggling, and that the next generation is not moving back to the farm, but looking for better paying jobs.
• Eventually, this farm ground will likely be sold to corporate farms, which could then be sold to the same data center developers bidding today, cutting the US farmer out of the equation. 

I saw an article posted to LinkedIn, the social media site masquerading as a business forum, talking about how farmers across the US are turning down extraordinary monetary offers for their land from data center developers. A few examples cited in the post: 

• A Kentucky farmer was offered $10 million for 250 acres, or $40,000 per acre. According to the post, the farmer “turned it down without needing a single day to think it over”.
• A Pennsylvania farmer was offered $15 million and turned it down (the number of acres was unspecified)
• A Wisconsin farmer turned down $80 million last January as well (again, no number of acres were listed)
• The poster pointed out “some landowners are offered over $120,000 per acre. To no avail.

Now, let me tell you a story. 

Back in my early days, let’s say late 1980s early 1990s, as a Series 3 licensed commodity broker in my hometown of Lewis, Kansas, my “office” was on the main floor of the Lewis Cooperative Grain Company main building that sat at the north end of Main Street. If you think all that sounds impressive, with visions of the Chicago Board of Trade building “standing at the foot of the LaSalle Street ‘canyon’”. (Truth be told, that is one of my favorite views, looking up LaSalle Street in Chicago. Not to mention Ceres Café is on the ground floor of the CBOT Building.) I like to say Main Street, Lewis, Kansas was the only paved street in this little farm town, generously listed with a population of 400 people. (Though I think that number includes much of the surrounding area, and probably a few cattle. In other words, USDA probably estimated the population.) Anyway, back to my story. 

In my little office in this little one paved street town, a local farmer – I’ll call him George – would come in and sit in the chair beside me for much of the day. Sure, he would leave to do his farming but would find his way back for the important parts of the day – the open, Tom Skilling’s midday weather forecasts on WGN (yes, I had a little tv in the office), the close. On those days he wasn’t busy, he would just sit, talk, and occasionally put in orders based on gut feelings. Like most folks back then, including my own investment advisor, the commodities complex was viewed as a gambler’s paradise, meant only for day trading or short-term positions. That being said, a long-term trade was considered more than 2 days. It was a wild time to be a young commodity broker, a time that included the Ferruzzi soybean “incident” and the collapse of the third-largest clearing firm Stotler and Company. 

George was addicted to trading commodities. That being said, it probably won’t surprise you he would often tell me land is a commodity, something to be bought and sold. George understood the game. Everything is an investment, be it S&P put options during the week leading up to October 19, 1987, aka Black Monday, cattle (George had a cow-calf operation), grain, and land. I learned a great deal visiting with George over the years, most notably those who wail on about “family farms” and “loving the land” because their forefathers stole it from the native folks a century ago are thinking with their heart rather than their head. And that has long been a problem with agriculture. An aversion to making money. 

There are a number of reasons I could never be a farmer. When Dad put me out on the tractor, I was terrible at it. I couldn’t concentrate on going back and forth through the field, my mind would start wandering, followed by the tractor and whatever implement it was hooked to. (My Dad was smart, I never pulled anything important like a planter or cultivator. That was for him and my older brother to do.) I always thought there was something else I could be doing. I also learned to see the profit or loss in any situation. This would occasionally work for me (the first trade I ever did, S&P puts in October 1987) and sometimes against me as a grain merchandiser trying to work on small margins. 

Let me be blunt: If I had some farm ground in Any State, USA, and a data center developer offered me $40,000 to $120,000 per acre, it wouldn’t take me “a single day to think it over” either. Those papers would’ve been signed before they were solidly settled on the desk. Think about George’s view of land. It’s a commodity, and a commodity can be thought of as an investment. Do you remember my Column from last October, “Baseball Cards and Gold”? It discussed another local farmer who owned gold (again, back in the 1980s) and would bemoan the fact certain baseball cards were worth more than his precious metals holdings. Both gold and baseball cards are also commodities to be bought and sold for a profit. Just like land. 

Think about the common theme in ag media these days, how US farmers are “facing deep financial losses driven by low commodity prices, high production costs, and trade disruptions”. It’s a no-win situation, where the only thing keeping many US grain farmers afloat is increased government welfare payments in the form of a farm program. There are also countless stories about how young people are not returning to the farm, deciding to find jobs that actually pay, meaning these “family farm” folks won’t have anyone to pass the land to anyway when they retire, or more likely die. Instead, they will sell out to a corporate farm for much, much less than what is being offered today, who in turn could sell to the data center developer for the inflated price. Guess who loses out on the opportunity of an investment return of a lifetime. 

I understand the negative connotations data centers, Artificial Intelligence, algorithms – or in other words progress – have, but the reality is this is the trend. Not just in agriculture, but society in general. As I wrote about recently, AI will replace farmers at some time down the road. There are places this is already being seen. Think about my Market Rule #1 (Don’t get crossways with the trend), as it pertains to more than markets. Finally, somewhere in the deepest recesses of my mind there is an old saying whirring around, “When the plate of cookies is passed, take one.”