Agriculture land in the U.S. is in the middle of a significant change of ownership as aging farmers choose to retire or reduce the amount of land they are farming. This creates an opportunity for farmers looking to expand their operations, but only if they have the capital to make a land purchase or lease.
That’s why farmers looking at their lending tools should consider working with investors to help expand their options during a “higher interest, tighter returns” environment, according to Harrison Rodgers of Fractal Investments.
“We know the projections show tighter economic returns in farming for 2024 and the cost of borrowing money has increased drastically,” Rodgers said. “Ag lenders are also increasingly concerned about liquidity. At the same time, deals don’t stop coming across your desk. Landowners are aging, farmers are retiring, and there are bigger, chunkier land sales.”
Fractal was recently a featured speaker on a University of Nebraska Lincoln webinar on financial innovation and farmland equity.
When considering lending options, companies like Fractal help farmers gain the money to expand by taking on “minority investors” who provide capital.
“In the next 10 years, $500 billion worth of assets in farmland will come up for sale and you will either have the opportunity to purchase that ground or be playing catchup on an unsecured land base,” Rodgers related. “Our company allows farmers to take on minority investors, using equity in the farmland to unlock the payment on a new field or expand the business in another way.”
Monies through Fractal can also be used for improvements like pivots, storage units or other farm expansion items.
“The whole idea is preserving your working capital position while helping that investment happen,” Rodgers said.
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The Fractal agreements are set for a 10-year period and offer farmers flexible annual premium payments that can be reduced if conservation work is being done on the land, such as the use of cover crops or soil conservation.
“We know that these kinds of methods can help with soil conservation, which makes for better yields and revenue stability,” said Drew Miller of Fractal.
Farmers working with Fractal are also able to “buyout” their investor partners after two years.
Fractal said it can offer farmers a payment rate of 2-3 percent less than the current interest rates and the equity capital is generally tied to a single field and not the entire operation.
To determine the value of the land being used for the investment, Fractal uses the University of Nebraska Lincoln Land Index. Given the recent trends, Fractal and its investors are betting on the value of farmland continuing to rise.
“Land appreciated 14 percent in 2023, and as the value goes up, that’s more value to borrow against,” Rodgers said.
In all, farmers considering their options may choose to work with companies like Fractal and their minority investors to expand their options.
“It’s just dry powder in your back pocket for that new deal,” Rodgers concluded.
For more information, visit fractal.ag.