During the recent Florida Agriculture Financial Management Conference in Orlando, Dykes Everett, founder and president of Dykes Everett & Co., gave his forecast on agricultural real estate and what will be driving land values in the future. More importantly, he laid out what investors like himself will be looking for in property.
“In many ways, ag land is like the movie title ‘Back To The Future,’” Everett said. “Historically, land was worth what you could do on it. How many cows you could put on it, or was it good citrus ground.”
If land owners are waiting for the big real estate boom like in 2005, he said they probably have a long row to hoe.
“But if you are in the agricultural business for the long run, then you are in a good position,” he added.
Everett said there are a number of trends that farmers and ag land owners should be aware of because, like it or not, they will drive the dialogue and decisions about food and fiber in the future.
Millennials (born early 1980s to early 2000s) are now the biggest demographic in the U.S. at 80 million strong, while Baby Boomers (born 1946 to 1964) are 70 million of the population. Everett asked for a show of hands among conference attendees who were Baby Boomers. He joked, “You are becoming less and less relevant.”
He added that Millennials are driving things now and they are very different than the boomers. He noted that only 80% of Millennials drive to work. Consider Orlando where the conference was held — the average age in the city is 34.
“Here is a fun fact,” he said. “Orlando was the second city in the U.S. with the most eyeballs on the World Cup soccer tournament.
“And, these people work differently. They have two times the rate of renting than we had and they don’t buy their first home well into their 30s.”
He added Millennials like living in urban environments, so in one sense they will be further removed from agriculture. But organic agriculture is hugely popular with them. “Organics are real and here to stay,” he said.
And, he cautioned that non-GMO is increasingly associated with organic food demand. Farm-to-table also is huge with Millennials. They want to know where and how the food they eat is grown. They embrace sustainability and the idea of socially conscious food production. They will drive this forward, and it will impact the demand for food and fiber in the future.
Another trend that will drive food production is the rise of the middle class around the world. Countries like China and India have a growing middle class. Those populations will demand richer diets in the future, and this will influence what we grow in the U.S.
Everett said the No. 1 factor that will drive ag land value and investment in the future is water.
“Everything will be driven by water because we are running out of it in Florida,” he said, “or we are running out of cheap water at least.”
Investors will consider the amount of water below property and the quality of that water. Reclaimed water is going to increase in usage in agriculture and urban settings.
The No. 2 consideration in ag land investment after water is qualified farmers in place to manage the property in a profitable way for the long-term. Everett noted the aging of growers in America.
“There are almost 2.5 times more farmers that are older than 75 than those who are ages 25 to 34,” he said.
Because of this generational change, bankers will need to know that there is a solid succession plan in place to ensure stability in the future.
The Black Swan
Everett concluded that all the trends and predictions can be upended by the “black swan.” In economics, this is the unforeseen event that can’t be calculated but can have an industry changing impact virtually overnight.
“Think 9/11, Ebola, fracking, climate change, and market meltdowns,” Everett said. “Agriculture is particularly cursed with unforeseen weather and pest problems. All of these things are black swans, and capital managers have a particularly hard time dealing with that.”