2022 United States Census of Agriculture

Many of you are familiar with the U.S. Census survey that is taken every ten years to count the number of people living in the country. The Census is a big deal because it determines how many seats each state gets in the House of Representatives and used for the allocation of government funds and programs like schools, hospitals, and roads. However, many people are unaware that there is also an agricultural census. Unlike the decennial U.S. Census, the U.S. Census of Agriculture is conducted every five years. Initiated in 1820, the agricultural census provides a rich history of valuable insights into American farmers and the agricultural economy. Today, it not only tracks the number and location of farmers but also assesses land use and ownership, operator demographics, production practices, and farm income.

The results of the 2022 Census of Agriculture were released in February of this year, carrying significant implications for policy, agricultural decision-making, and investment interest. Farmers and stakeholders in the agricultural industry pay close attention to these results as the census can affect USDA Farm Bill allocations, technological innovation, and the economic outlook for agriculture. The full report can be located here.  The USDA also does an excellent job of summarizing key data in a series of highlight reports.

Farms and Farmland

Will Rogers used to say, “Buy land. They ain’t making any more of the stuff.” These words have echoed across the agricultural sector for decades and it has never been truer. As of 2022, there are now 880 million acres of farmland in the United States which may sound like a lot, but it is down 20 million acres, or 2.2%, from 2017 and 40 million acres, or 4.4%, from 2007. Development pressure, renewable energy projects, and conservation programs are driving the reduction in farmland acreage. Consequently, the competition for land use has increased farmland prices which have been further buttressed by growing food demand for the world’s expanding population. The graphic below illustrates the concentration of farmland in the United States, with a significant portion located in the central part of the country.

Not only have the acres devoted to farmland declined but the number of farms continues to shrink due to industry consolidation. It was reported in the 2022 Census that the number of farms fell below 2 million for the first time. Family farms continue to dominate the sector, with 96% of farm operations still classified as family-owned. However, the number of family-owned farms is dwindling as the expensive nature of key inputs such as acreage and equipment needed for modern, efficient operations drive more people to leave rural America in search of job opportunities elsewhere.

Larger producers are eager to take advantage and expand their operations. The industry continues to become increasingly concentrated with the average size of a farm rising 5% from 441 acres in 2017 to 463 acres in 2022. It is important to note that the USDA classifies a farm as “any place from which $1,000 or more of agricultural products were produced and sold, or normally would have been sold, during the census year.” This definition can cause skewness in the data as small backyard gardens selling produce at local farmer’s markets could constitute a farm for the USDA census.

The shift in the concentration of farm ownership means fewer farm operators control a larger percentage of acres. The USDA estimates that 42% of U.S. farmland is controlled by 2% of U.S. farm operators. These large farms dominate agricultural production and income. On the other side of the scale coin, 42% of farms control only 2% of all U.S. farmland. Like other sectors of the U.S. economy, as time goes on the sector has continued to become more concentrated with the largest 10% of farm operators controlling more and more acres. From an efficiency standpoint, this isn’t necessarily a bad thing as large-scale farms are often much more efficient allocators of resources and capital but there will remain concerns over whether these large farms will consistently be good stewards of the land.

Farm Producers

Farm operations are evolving and the producers/farmers running these operations are changing as well. A persistent concern in the agricultural community is the increasing average age of agricultural producers. Consider your own image of a farmer. Do you envision someone young, educated, or perhaps a woman or a person of diverse background? More likely, the image that arises may resemble the figures in Grant Wood’s “American Gothic” painting from the board game “Masterpiece,” one of the most recognizable images in American art.

Wood’s painting actually paints a fairly accurate depiction of what the average farmer today based on the USDA’s findings. The average age of farmers continues to rise, now standing at 58.1 years young, with 95% of producers being white. The concern over the average age of the farmer has persisted for decades. The reason behind this demographic statistic largely stems from the capital intensity of agriculture. The table stakes for land, machinery, and other agricultural resources keep rising for young and beginning producers. Unless facilitated as part of a farm succession and estate plan, it is very difficult for new blood to enter the farming sector. The USDA has tried to facilitate new entrants with several young and beginning farmer programs which have provided some relief.

Farm Economics

Favorable commodity prices and yield trends for agriculture during and after the COVID-19 pandemic translated into strong growth in the value of agricultural production. As of 2022, the USDA reported U.S. farms produced $543.1 billion worth of agricultural crops, up 40% from $388.5 billion in 2017. The share of production value is largely split evenly between crops and livestock, with grains and oilseeds dominating production value on the crop side. Cattle and calves are the top-ranked commodity in agriculture, making up 17% of total US agricultural production by value.

Moving onto state-level data, California dominates agricultural production value. California’s prominence is largely due to California’s favorable year-round weather, overall crop diversity, and ability to produce high-valued specialty products like wine and table grapes, almonds, and pistachios. In 2022, California raised 11% of all US agricultural production with Iowa, Texas, Nebraska, and Minnesota making up the remaining top 5 spots. However, recent legislation in California surrounding trucking emissions and livestock and water management could threaten its standing. The legislation calls for a phasing out of diesel-based trucks and has raised concerns among producers, as most agricultural machinery relies on diesel fuel. Although Tesla is developing the Tesla Semi for the trucking industry, Tesla has no near-term plans to develop harvestors and other ag equipment. Currently, there are few viable or affordable alternatives to replace diesel engines in agricultural machinery.

Agriculture has evolved tremendously over the past several decades and is likely to continue to become more efficient and dependent upon technology. One of the barriers to technological expansion and information dissemination is access to reliable internet services. The internet has made it possible for a tremendous amount of information exchange in everyday life and the same is true for agriculture. As of 2022, 79% of farms had internet access which is up from 70% in 2012. Part of this modest upward trend could be credited to Elon Musk’s Starlink low earth orbit satellite system which has provided millions of people living in rural or remote areas with reliable, high-speed internet. On a personal note, my family farm has licensed Starlink internet services within the last five years. This is the first time we have been able to stream videos and surf the internet with ease. The expansion of high-speed internet services is also providing remote employment opportunities for rural workers. Such technological advancements could have possible repercussions on the average farmer's age and diversity in agriculture.

Implications for Promised Land

The 2022 Census of Agriculture results highlight the attractive opportunity set for Promised Land’s mission of being the leading rural development partner for Opportunity Zones in American farming communities. The future of agriculture continues to be bright as U.S. farming remains one of the largest and most efficient producers in the world. Promised Land is committed to finding strong farmer partners who are seeking to expand their operations while providing for a more sustainable future for their rural communities. Opportunity Zone tax legislation provides a catalyst for growth and innovation in rural communities that may be struggling with stagnant economic activity and unfavorable demographics as the USDA data suggest. With the USDA expected to expand its funding for young and beginning farmers, conservation efforts, Federal crop protection, and broadband initiatives within the next Farm Bill and related legislation Promised Land plans to work alongside its farmer partners to ensure the promise of American agriculture for generations to come.

On the legislative front, OZ extension and Rural OZ proposals remain top of mind for U.S. Rep. Mike Kelly, Republican from Pennsylvania and chairman of the Ways and Means Subcommittee on Tax.  In this recent Op Ed in Go Erie, he wrote:

“Moving forward, I want more communities to benefit from this legislation the way Erie has. In September 2023, I introduced the Opportunity Zones Transparency, Extension, and Improvement Act. This bipartisan legislation builds upon the success of the 2017 tax law. It would require mandatory data reporting of Opportunity Zone investments to increase transparency and streamline the reporting process. It also extends the investment and deferral window to provide more time to drive more investment into high-impact projects in low-income communities. We are also finding ways to expand Opportunity Zones to rural communities, as well.”

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    The Opportunities for US Farmland in a Net Zero World: A Recap of Dr. Dave Muth’s Presentation At the 2024 Land Investment Expo

    The Promised Land team had the opportunity to attend the 2024 Land Investment Expo in January where we listened to a series of enriching conversations about the current geopolitical climate, legislative updates, and the future of agriculture. One keynote session that was of particular interest to the Promised Land Team was Dr. David Muth’s discussion titled, The Opportunities for US Farmland in a Net Zero World. Dr. Muth, Managing Director of Capital Markets at Peoples Company, discussed agricultural land’s central role within renewable energy transition and how best to monetize these real options. At Promised Land, we foresee a rich opportunity set under development in organic farming, climate-smart ag, conservation practices, and renewable energy.  These evolving ecosystem services generally strive to minimize the environmental impact of farming through more eco-friendly practices such as reduced water usage through appropriate tillage, irrigation, and precision grading.  We see continued interest among investors and stakeholders in these environmental, social, and governance (ESG) friendly investments and farming practices. To this end, we thought Dr. Muth’s perspectives on the future of energy transition and agriculture were worth sharing.

    “The beginning of the end of fossil fuels.” – Simon Stiell, Executive Secretary, United Nations Framework Convention on Climate Change.

    “The beginning of the end of fossil fuels.” – Simon Stiell, Executive Secretary, UNFCCC (United Nations Framework Convention on Climate Change). Dr. Muth began his presentation with this quote from the Conference of the Parties (COP) Meeting through UNFCCC where Mr. Stiell gave an overview of the current status of carbon emissions and opportunities for the future. Globally, we consume 137K terawatt-hours of fossil fuels annually, resulting in total global emissions of 58.2 billion tons of CO2 (carbon dioxide). One terwatt hour will fully power 70K homes for a year. Currently, nations across the world are spending a total of $1.7 trillion towards the transition from traditional fossil fuel sources to renewable energy sources. Dr. Muth believes that spending needs to be closer to $4.3 trillion if the world wants to hit its net zero goals. Put simply, net zero means cutting carbon emissions to a small amount of residual emissions that can be absorbed and durably stored by nature and other carbon dioxide removal measures, leaving zero in the atmosphere. China leads the world in energy transition spending with the United States and Germany coming in second and third. Interestingly enough, while China is investing the most in the renewable energy space, they also are building coal-fired electricity plants at a staggering rate. This contradiction suggests that China’s interests aren’t just investing in sustainable energy, but they are investing in energy capacity, period. (Watt a concept!)

    Dr. Muth divided his energy transition presentation into four buckets: wind turbines, solar, renewable fuels, and carbon storage. These key pieces to the energy transition are known to have the largest potential effect on agriculture as abundant land plays a foundational role in the broad deployment of these technologies.. If you drive across the great plains of the Midwest, you will likely see tall wind turbines spread across the countryside amongst the farm fields and ranch land. Since the Land Investment Expo takes place in Iowa, many of the examples used in Dr. Muth’s analysis are related to Iowa.  Dr. Muth also discussed how energy transition could affect the entire country. Nationwide there are 73,352 active turbines with 6,293, or 9%, of those spinning in the state of Iowa. If wind energy was expanded to meet the nation’s demand for electricity in combination with other renewable sources, Iowa would need around 47,900 to meet this demand, or almost 8 times the current resource.

    The other common renewable energy source popping up across farm fields and commercial and residential roofs is solar panels. Nowadays, it is impossible to make a trip to Costco without someone trying to sell you a pair of solar panels for your home. Currently, there are 3.5 million acres of solar panels across the United States but that is not enough to meet our nation’s net zero goals. Dr. Muth projected that solar acres would need to grow by 3 to 4 times if the U.S. wanted to meet its energy transition goals. There has been considerable debate on whether to use high-quality farming acres for food or energy purposes when it comes to solar panels. While farmers can still operate around wind turbines, covering a field in solar means that farming is no longer viable. The Midwest is home to some of the most productive soil in the world and Dr. Muth projects many of the solar panels would likely not be placed in Iowa and other states in the Corn Belt.  He expects solar farms to be built in the Southwest and Southeastern states where there are long days of sunshine and less productive soils.

    Dr. Muth next transitioned his talk to renewable diesel which has been all the buzz in agricultural markets but it comes with some valid concerns. Soybeans can be used for a variety of food, fiber, and feed products. Recent advancements and legislative pushes in soybean biodiesel and sustainable aviation fuel have brought about new opportunities in the space. Currently, the United States has 22.75 billion gallons of capacity for renewable diesel and would need to double that number to meet the expected future demand for renewable diesel. That also means that U.S. farmers would need to produce 24 billion bushels of soybeans. Currently, the United States produces around 4.5 billion bushels of soybeans and while renewable show promise, people are still hesitant to fully move away from traditional petroleum-based diesel due to costs and infrastructure challenges. The costs of producing soybean biodiesel are substantially higher due to the refinery process and there are also concerns that it isn’t all that sustainable. Even though it comes from plants, soybean biodiesel produces more emissions than traditional oil-based fuels. The other concern with soybean biodiesel is that wide expansion would end up hurting the consumer on food prices. Soybeans and soybean oil are key ingredients in a majority of processed foods that you would find in the grocery store. Adding to the competition demand from soybean biodiesel could disrupt our food supply which is known for being secure and relatively cheap. While the space has promise, it is going to need continued research and advancements before wide adoption.

    The final portion of Dr. Muth’s presentation centered around finding a place to sequester the carbon so that it wasn’t harmful to the environment. Soil provides us with many things and is an essential ingredient in agricultural production but it can also be used for carbon storage. Carbon can effectively be pumped and stored underground just like oil and natural gas have been stored for millions of years on Earth. The state of Illinois has been at the forefront of the discussion around carbon storage as its rich black soil makes it ideal for storing carbon. If the United States were to store all of its carbon emissions underground it would cover 27 feet of depth in the states of Texas, New Mexico, Arizona, California, Nevada, Utah, and part of Colorado just as a frame of reference. There are several environmental and safety concerns over carbon storage as it can be very dangerous if the carbon leaks. A recent push to develop a carbon storage pipeline through Iowa has been met with concern over the potential safety concerns and impact on the land itself from digging and equipment compacting the soil. The pipeline would carry carbon emissions from ethanol plants which are known to be substantial emitters of carbon. While there could be a large opportunity for landowners to earn additional income sources from carbon storage, there still needs to be more research on its effects on the surrounding communities.

    The closing punchline to Dr. Muth’s presentation was that a significant requirement to meet the U.S.’s “net zero” goals will require large swaths of land. With several hundreds of millions of acres of U.S. land presently devoted to agriculture, farmland is a natural target for the deployment of these technologies. There will always be concerns over the use of land for food or energy but when examining the monetary effect of the possible energy transition, the potential economic benefits of rural farming communities could be quite large. Producers and landowners alike stand to benefit substantially from the opportunities at hand. Dr. Muth estimates a combined $400 billion effect on farmland values and agricultural income. He put forth a staggering estimate that land values in the Midwest, where much of the energy transition will be centered, could triple or quadruple in the next 25 years. However, these projections are not that farfetched.   A compound annual growth rate (CAGR) for a farm that triples in value over 25 years is 4.5% which is in line with our estimate of the 10-year appreciation potential of farmland computed as 2.0% spread over consumer price inflation (CPI). All items CPI rose 3.4% in the twelve months ended February 2024 while the 10-year TIPs/Treasury breakeven is presently 2.4%. The CAGR for a farm that quadruples in value over 25 years is 5.7%, also plausible in an ongoing era of money printing.

    Promised Land is dedicated to staying on top of these energy transition developments and their value creation potential for our landowner investors. We will continue to look for properties that may have wind or solar development opportunities as well as ways to capitalize on stranded energy and/or energy storage potential. We hope to be at the forefront of this evolving landscape and help usher in the new promised land of abundant, cheap, sustainable energy while revitalizing rural American farming communities located in Opportunity Zones.

    (Image of Promised Land’s Broadland PLOZ Farm in downstate Illinois with its 3 wind turbines)

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      Promised Land OZ Exhibits at the 2024 Land Investment Expo

      Earlier this month, Promised Land ventured up to snowy Des Moines, Iowa to the 2024 Land Investment Expo. The Promised Land team sat in on several sessions highlighting key events in agricultural investing while also having a booth display to showcase Promised Land. Despite a historic blizzard that kept many event registrants homebound, Promised Land’s booth proved to be quite popular thanks to some delicious cookies and key investment materials. We had the opportunity to meet investors, farmers, and industry experts from across the country who were curious to learn more about Promised Land and opportunity zones. We were surprised by the high percentage of farmers, farmland owners, and ag business leaders that we spoke with who were unfamiliar with the Opportunity Zone (OZ) tax legislation. We were not surprised to find that many of these rural American business owners had an OZ in their “backyard” or nearby census tract when we jointly consulted an online OZ mapping tool in real time. 

      Another event highlight was the opportunity for Promised Land’s founder, John Heneghan, and investment analyst, Ailie Elmore, to convene in the studio for an interview on the Land and Everything Else podcast. The podcast is being created by Craig Lemoine and Ailie with the College of Agricultural, Consumer, and Environmental Sciences at the University of Illinois. It is aimed at providing listeners with knowledge and opinions about investing in alternative investments. The recording will be released later this Spring, so stay tuned!

      The Land Investment Expo has a rich history of prominent keynote speakers including Martha Stewart, Jimmy John, Sam Zell, and several noteworthy political figures. This year was no different as People’s Company brought in various experts on the economy, agriculture, geopolitics, and even football. The Expo’s breakout sessions were filled with informative conversations about alternative energy, conservation programs, and farmland investing, among others. 

      The 2024 Land Investing Expo highlighted thirteen keynote speakers along with long-time host Eric O’Keefe, publisher of the Land Report, who led several conversations throughout the day. The morning began with USDA Under Secretary of Farm Production and Conservation, Robert Bonnie, providing a legislative update and viewpoints on the Farm Bill which is expected to be passed sometime later this year. He set the stage for a global macro conversation with Willis Sparks, Director of Global Macro of Eurasia Group. Mr. Sparks covered several key geopolitical conflicts such as the ongoing Russia and Ukrainian War and the Israeli conflict with terrorist group Hamas. As agriculture is a global marketplace, stakeholders in the industry need to be apprised of world events and their potential effects on trade flows and production. Moving on to domestic policy, Eric O’Keefe then sat down with California State Representative, James Gallagher, to discuss the political consequences on California Ag as the state moves toward green energy initiatives that may have adverse consequences for some California farmers and landowners.

      After a morning of breakout sessions and a welcome cookie break at the Promised Land booth, attendees headed to the main stage to enjoy lunch while listening to New England Patriots Hall of Fame quarterback, Drew Bledsoe, talk about football, community, and winemaking. In a very candid conversation, Eric O’Keefe talked with Mr. Bledsoe about his football career and how he “doublebacked”  to his small-town roots in Walla Walla, Washington to open up a high-end winery. Interestingly enough, there is a large patch of opportunity zone properties located near Walla Walla that Promised Land plans to investigate further. Unfortunately, there was no taste testing of the Drew’s wine over lunch but we will be giving DoubleBack Winery’s Cabernet a try in the near future. Before the group was dismissed for the afternoon breakout sessions, Peoples Company’s own, Dr. Dave Muth, came to the main stage to discuss the Opportunities for US Farmland in a Net Zero World. His presentation was very interesting and Promised Land plans to highlight this presentation in more detail in the next newsletter. 

      Finally, before attendees were able to redeem their drink tickets at the post-Expo happy hour, they entered the main hall for one more round of diverse conversations. Promised Land’s Advisory Board Member, Dr. Bruce Sherrick, discussed current land trends and expectations for future changes in valuation. We highlighted similar trends in a recent article. Dr. Sherrick was a bit, more skeptical about the immediate future for farmland markets but long-term bullish. Dr. Sherrick thought farmland values over the next year or two may see a leveling off of the strong appreciation we have experienced particularly in the Midwest, over the past four years. 

      Next former President & CEO of the Federal Reserve Bank of Kansas City, Esther George, and Senior Fellow at George Mason University and former FOMC member, Thomas Hoenig, conversed about the recent tightrope that the Federal Reserve has been walking to combat inflation. In sum, the esteemed panelists unanimously believed that Chairman Powell is walking a policy tightrope between inflation and economic growth.  Finally, in the last session of the day and one of the most highly anticipated, Eric O’Keefe sat down with experts at the National Agricultural Law Center and agricultural investment professionals to discuss recent political concerns over foreign ownership of agricultural land. The recent controversy over Chinese ownership interest in agricultural land near strategic military and other sensitive assets has some domestic landowners concerned over losing control over America’s precious gem, farmland. However, the group discussed that less than a percent of land in the U.S. is foreign-owned with a majority of that percentage being owned by our Canadian neighbors to the north. 

      The day ended with a few laughs and spirits at Happy Hour while Promised Land continued to make connections with potential partners and friends. We’re grateful for the fruitful conversations we had at the Land Investment Expo and will continue to build on this momentum as we grow Fund II’s investment pipeline and investor base. Many thanks to People’s Company for hosting such a successful farmland conference.

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            Farmer’s Daughter’s Harvest Update

            Farmer’s Daughter’s Harvest Update

            The rumble of the combine going through the field, the flutter of dust and debris through the air, and long hours spent working the same land that my family has farmed for 5 generations are all signs of my favorite time of year, Harvest. Fall is such a special time of year for me as students return to my classroom at the University of Illinois at Urbana-Champaign and the promise of another harvest season comes to fruition. I spent my childhood on the floor of a combine or tractor playing with my miniature versions of equipment and taking the best cab naps while my father, grandfather, and great uncle worked tirelessly to provide for our family. At fifteen, my brother went off to college at the University of Illinois giving me my first opportunity to truly be an active part of the farming operation. That year I learned to drive the combine and have spent every fall since behind the wheel of a John Deere Combine or a grain cart. While my grandfather and great-uncle have since passed, it is incredibly special to me to get to continue my family’s farming legacy while also educating the next generation on the importance of food and agriculture and sustainable farming practices.

            United States Harvest Progress and Supply and Demand Estimates

            Elmore farms finished up harvest in the middle of October while several farm operations in Illinois are still wrapping harvest up this month. We were blessed with adequate rain and growing conditions correlated to strong yields however not every farmer in the U.S. has been quite as lucky. Unfortunately, parts of Iowa, Kansas, Nebraska, and the Southern part of the U.S. have been facing an intense drought affecting crop yields in these areas. These areas have been plagued with extreme drought the past few years meaning crop yields in these areas have been unsatisfactory for multiple years. As of November 6th, the USDA reports that the top 18 corn producing states are 81% complete while soybean harvest in those states is 91% complete. Most farmers in the Midwest should be finished by the time the turkey is cut on Thanksgiving Day.

            The United States Department of Agriculture (USDA) released its November World Agricultural Supply and Demand Estimates on November 9th showing slightly improved yields from last year with an average yield of 174.9 bushels/acre compared to 173.0 bushels/acre last year. On the soybean side, yields remain similar with a projected U.S. average of 49.9 bushels/acre compared to 49.6 bushels/acre last year. On the demand side of the equation, supply is currently rising more than demand as foreign corn production is forecasted higher in Ukraine, Russia, Burma, and Paraguay. The ongoing conflict in Russia and Ukraine had an initial strong impact on global corn markets as Ukraine has historically been a large supplier of commodities for the rest of Europe. However, as the conflict persists, markets have adjusted shifting to strong dependence on South America’s growing production. USDA concluded in August of 2023 that Brazil overtook the United States as the world’s leading corn exporter. Brazil is already on the podium as the largest soy exporter with much of its demand meeting China’s growing commodity needs. The United States is allocating more of its share of corn production towards growing domestic biofuels and vegetable oils while exports are lower. The world’s shift toward more biofuels and larger food production continues to reflect a strong future for U.S. agriculture.

            Farmland Markets Update

            In August, our farmland values update showed that farmland values in the United States remained strong with US farmland appreciating 8.1% on average from 2022 to 2023. Transactions have started to slow recently, and prices are starting to level off in some areas of the U.S.  Some economists believe we may be in for a correction in farmland values. Farmland values are determined by a variety of factors with one of the main drivers being farm incomes and cost of capital considerations. 2021 and 2022 were record years for farm income as strong commodity prices boosted farmer returns which in turn put upward pressure on farmland values. However, 2023 incomes are not looking quite as strong. Growing input prices made planting commodities more expensive while commodity prices have declined from peaks in 2021 and 2022. While net farm income is projected to back off from a peak in 2022, it is still projected to remain modestly above the 20 year averages for net farm income and net cash farm income.

            The other factor impacting farmland values are changes in interest rates. Interest rates have remained relatively low since the mid-1980s making financing options in farmland relatively cheap and putting upward pressure on farmland markets. The figure below shows how the current return to farmland typically tracks with the ten-year contact maturity treasury rate. However, times of extreme interest rate hikes tend to have an adverse impact on farmland values. As the Federal Reserve fights to control inflation through interest rate hikes, it has become more expensive to finance farmland purchases for farmers and investors alike. If the FED continues to raise rates, it will likely put downward pressure on farmland values. However, recent inflation numbers suggest price pressure for consumers is starting to abate suggesting the FED’s interest rate hikes may have come to an end.

            Opportunity Zone Legislation Update

            Since the inception of the Opportunity Zone (OZ) legislation from the Tax Cuts and Jobs Act of 2017, low-income communities designated as OZ’s have seen an influx of capital moving in to help boost local economies and revitalize life for people living in these areas. On September 27th, legislation titled the Opportunity Zones Transparency, Extension, and Improvement Act was introduced to the house by Representatives Mike Kelly and Dan Kildee along with Representatives Carol Miller and Terri Sewell. The legislation is aimed at strengthening the Opportunity Zones policy with more reporting and measuring requirements while expanding incentives to invest in these areas. The legislation aims to reinstate the program and establish a State and Community Dynamism Fund to support public and private investment in qualified opportunity zones. The Economic Innovation Group released a full report with a summary of the legislation here. The legislation has yet to move forward as the House is still backlogged from weeks of trying to find a new Speaker of the House.  However, we are hopeful that legislation will be passed within the next year given its broad, bipartisan support.

            Final Thoughts

            Harvest time for me is always a time of reflection of where we have been and where we are going. At the start of each year there is uncertainty about the prospects of the new year’s harvest and what the future of agriculture looks like. Every person involved in agriculture has their perspective of what the future looks like for the food and agriculture industry. For me, the future of agriculture is visible in my own classroom among the faces staring back at me each day. I am constantly reminded of the bright future agriculture has, seeing young minds so energized to take on issues like food insecurity, environmental concerns, and continued profitability and innovation within the industry. In my mind, agriculture remains one of the safest asset classes as traditional food and fiber will be an essential part of our needs as long as humans roam the Earth.  Some see alternative food sources such as insects and worms as the future however I do not foresee providing much competition to traditional large-scale farm production as the consumer’s mindset towards these protein sources is largely still dismissive.

            In high school, I spent much of my time participating in my school’s FFA (formally known as the Future Farmers of America) chapter where at each meeting we would recite the organization’s creed. I still look at it from time to time to remind me why I do what I do and why there are many, many like-minded farming families across rural America working to ensure the success of the U.S. Agricultural Industry.

            The FFA Creed

            I believe in the future of agriculture, with a faith born not of words but of deeds – achievements won by the present and past generations of agriculturists; in the promise of better days through better ways, even as the better things we now enjoy have come to us from the struggles of former years.

            I believe that to live and work on a good farm, or to be engaged in other agricultural pursuits, is pleasant as well as challenging; for I know the joys and discomforts of agricultural life and hold an inborn fondness for those associations which, even in hours of discouragement, I cannot deny.

            I believe in leadership from ourselves and respect from others. I believe in my own ability to work efficiently and think clearly, with such knowledge and skill as I can secure, and in the ability of progressive agriculturists to serve our own and the public interest in producing and marketing the product of our toil.

            I believe in less dependence on begging and more power in bargaining; in the life abundant and enough honest wealth to help make it so–for others as well as myself; in less need for charity and more of it when needed; in being happy myself and playing square with those whose happiness depends upon me.

            I believe that American agriculture can and will hold true to the best traditions of our national life and that I can exert an influence in my home and community which will stand solid for my part in that inspiring task.

            The creed was written by E.M. Tiffany and adopted at the Third National FFA Convention. It was revised at the 38th and 63rd Conventions.

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              August 2023 Agriculture Industry Update

              August 2023 Agriculture Industry Update

              The sun is beginning to set on summertime, meaning farmers nationwide are gearing up for Harvest. Harvest has already begun for some southern states and growers in the middle part of the country are preparing machinery for another fall reaping. 2023 has brought unique challenges and opportunities to farm producers from an ongoing Russian-Ukrainian conflict to varying drought conditions in parts of the United States. Long-term estimates for agricultural commodity demand remain strong as the world population grows demanding more food and new energy sources. Technology advancements in soybean’s potential as a biofuel and jet fuel have unlocked new potential demand for one of the United States’ largest cash crops. As a result, farmland values have remained strong in much of the United States, particularly the Midwest. The 2023 USDA Land Values Summary showed slowing growth rates compared to 2022 however cropland values continued to rise 8.1% from 2022 to 2023 to an average of $5,460 per acre. This United States Department of Agriculture (USDA) report suggests a promising future for the Promised Land Opportunity Zone Fund I (PLOZ Fund I) as we execute on our rural development mission to revitalize rural communities while providing investors with a tax-advantaged investment vehicle.

              Crop Progress Update

              Agriculture is unique because it is one of the few sectors whose output is largely dependent on weather conditions. Not only do weather conditions affect the size of the crop, but they also can affect the prices received as futures markets react to incoming news of rain, drought, wind, or other weather changes. 2022 brought about drought concerns throughout the United States as California, Kansas, and several western states suffered from exceptional drought conditions. The drought decimated water supplies and yields of a variety of crops such as vegetables, fruits, bulk commodities, and nut trees. The American Farm Bureau estimated more than $20 billion in crop losses due to drought or wildfires, pressing farm incomes and profit in certain geographies. On the flip side, the Corn Belt saw strong net incomes and yields as more favorable weather conditions left many states in that region unaffected.

              The drought that affected much of the West in 2022 has started to work its way east toward key bulk commodity states, bringing concerns of a diminished harvest in 2023. While parts of Texas are still suffering from last year’s drought, California, Nevada, and Utah have largely emerged from their concerning situations. Farmers in these areas were beginning to feel pressure from communities and local officials as they debated whether to use water for irrigation of crops or human consumption. One region that has remained mostly unscathed is the eastern United States which is good news for Promised Land as our largest farm in the PLOZ Fund I, the McCotter farm sits on the east coast of North Carolina in Pamlico County. PLOZ Fund I also has three farms in South Carolina and two farms in Mississippi.  Geographic diversification was an important consideration in the construction of the Promised Land farm portfolio.

              The varying drought patterns have impacted the upcoming harvest expectations as many of the operators farming the properties in PLOZ Fund I portfolio will begin harvesting within the next month. In the most recent World Agricultural Supply and Demand Estimates (WASDE) report, the USDA estimated that the average corn and soybean yield (the primary crops in the PLOZ Fund I portfolio) would be 175.1 bushels per acre and 50.9 bushels per acre, respectively. These yield values are lower than the previous report in July which reported corn and soybean yields of 177.5 bushels per acre and 52.0 bushels per acre, respectively. These adjustments came as no surprise to many producers in the Midwest as crucial commodity states such as Iowa, Kansas, and Nebraska are still suffering from drought. Thankfully, for the farms in the PLOZ Fund I portfolio rains came at crucial times and harvest expectations are looking promising.

              Financial Update

              As a result of the varying drought patterns and other global factors, agricultural commodity prices have fluctuated throughout 2023. Corn and soybeans prices have been trending downward making it unlikely that farmers will reach peak net incomes like they did in 2021 and 2022. Farming is a unique industry in that farm incomes are entirely determined by an uncertain production amount for an uncertain price, meaning farm incomes are not consistent from year to year. However current prices and yield expectations remain favorable for positive farm incomes in the United States. The USDA has estimated national farm incomes to drop off from 2022 however will still remain above the 20-year average net cash farm income. Note that Promised Land tenant's generally pay fixed cash rents. These tenant’s primarily bear the risk and rewards of their labors and the fluctuations in yield and crop prices.

              Agricultural commodity markets are influenced by a variety of factors that impact the prices of corn and soybeans. As with any product, it’s all about supply and demand. We have already discussed the supply side, but what about demand? One of the major factors impacting markets since February 2022 is the Russian invasion of Ukraine. Ukraine is known as the breadbasket of Europe as it is one of the top producers for major agricultural commodities such as wheat, sunflowers, and corn. As the conflict persists, commodity markets have adjusted prices and introduced market risk premiums over concerns of whether Ukraine will be able to export its typical substantial amount. Thus far, Ukrainian farmers have remained resilient and are expected to produce a strong harvest in 2023 however it is still unclear whether or not Ukrainian farmers will be able to export their crops. In July 2023, the Kremlin terminated the Black Sea grain deal which previously made it possible for Ukraine to export its grain by sea even while the war ensued. The Black Sea ports are crucial to the export of these large bulk commodities and without access to these ports, parts of the world may go hungry without Ukraine’s crops.

              Another major factor that will continue to impact commodity markets in the future is the increased demand for biofuels. As the United States and other developed nations look to reduce their dependence on traditional energy sources such as coal and oil, advancements in biodiesel and aviation biofuel have markets looking toward one staple crop in the Midwest, soybeans. In the past, soybeans have been looked at as “the crop you plant when you don’t plant corn” as it provides the soil with essential nitrogen needed to produce corn and other crops.  Many farmers adopt a standard corn and soybean crop rotation as a result. Yet, new demand for soybeans has created price incentives for farmers to consider planting more soybean acres rather than corn in upcoming years.

              These demand factors will continue to impact global commodity market pricing; however, the biggest driver remains domestic supply and yield expectations as we have already discussed. 2023 corn and soybean yield numbers will begin to become more concrete in the coming months as the harvest progresses and USDA updates WASDE figures.

              Nov ’23 Soybean Futures as of August 14th, 2023

              Dec ’23 Corn Futures as of August 14th, 2023

              Source: Barchart

              Farmland Values Update

              For Promised Land OZ investor, a significant determinant of investment performance is expectations surrounding changes in farmland values, driven by farmland cash yield and appreciation potential. 2020-2022 brought about some of the most significant gains in land appreciation and farmland returns as world uncertainty surrounding COVID-19 reminded people that regardless of the world’s status, people still need to eat. Real estate investors became increasingly interested in evaluating farmland as an investment alternative, spurring increased demand for an asset class with a limited supply. Food inflation caused commodity prices to rise which in turn created a positive benefit for farm cash rents and land appreciation. As a majority of the properties in the PLOZ Fund I portfolio were acquired in 2021 and 2022, Promised Land’s portfolio has appreciated nicely. 

              Early 2023 projections concluded that cropland values would continue to remain strong, but gains would begin to moderate due increasing costs of capital from the Federal Reserve’s interest rate hiking campaign. The USDA confirmed these early estimates in its 2023 Land Values Summary which was released in early August. Much of the United States saw strong increases in values with US farmland appreciating 8.1% in 2023 from 2022 with large gains occurring in Midwest and Eastern states where PLOZ Fund I has a strong presence. While this is still a strong appreciation value, it shows slowed growth from the previous report which reported a 14.3% appreciation nationally from 2021 to 2022.

              The estimated fair value of Promised Land’s ten farms purchased in 2021 has appreciated $5.5 million, or 8.5%, above historical cost through June 30, 2023. The two most recent Illinois farms purchased in October and December of 2022 remain at cost.

              The USDA reported the following year over year cropland values and per acre average values for each of the states represented in the Promised Land portfolio:  Illinois (+7.0%, $9,580), North Carolina (+6.4%, $5,000), South Carolina (+4.8%, $3,300) and Mississippi (2.1%, $3,410).  Promised Land OZ will incorporate the latest 2023 USDA Land Values Summary and other valuation inputs into its valuation analysis for the quarter ended September 30, 2023 and anticipates further overall net appreciation in its farm portfolio.

              While appreciation has slowed, the data indicates there is still strong demand and interest in U.S. agriculture as an industry and an asset class. Farmland appreciation may continue to moderate towards the end of 2023 and into 2024; however, farmland continues to be an attractive inflation-protected asset class over the long-term hold period for PLOZ Fund I.

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                    A Farmer’s Daughter’s Guide to Investing: Opportunity Zone Investing in Farmland

                    My name is Ailie Elmore, and I am an instructor at the University of Illinois at Urbana-Champaign in Agricultural and Consumer Economics. I grew up on a farm in central Illinois where my family grows corn and soybeans. I have worked on the farm my entire life from running the combine or grain cart in the fall to now being more involved in the management of the operation. Farming has changed immensely over the course of the last 150 years and working alongside my father, brother, and grandfather, Kek Elmore, has taught me that. My grandfather who lived to be 99 often talked about his experiences farming in the early 1900s when they used blind donkeys from the coal mine to farm and remembered picking corn by hand, ear by ear. Today we have tractors that don’t need us to steer, and many farmers must spend more time crunching numbers behind a computer than working in the field to ensure the success of the farm. Farming has evolved but one dynamic has remained constant – people need to eat, and American Farmers do their honest best to put food on as many tables in the world as they can. After transitioning from the “farmer’s daughter” to the farmer herself, I want to see this continue. The goal of the “Farmer’s Daughter’s Guide to Investing” series is to provide both institutional investors and agriculturalists with current investment knowledge from the perspective of a 5th generation farmer and economist.

                    “I think that farming is one of the great life callings. It has become very difficult now, but it is a great artistic, creative calling” – John O’Donohue, Irish Poet and Writer

                    Disclaimer: This is not tax or investment advice. Please see a tax or investment professional to see what is right for you.

                    What are Opportunity Zones?

                    I was blessed to have grown up with parents that were able to give me many opportunities in life including education, travel, and sponsorship of one of my most expensive hobbies: horses. However, growing up in a rural area I saw that many of my schoolmates or others in the community did not have these same opportunities. The rural poverty rate is close to 17% which is 3 percentage points higher than the poverty rate in urban America. While most of the United States has prospered due to urbanization and industrialization, rural America has largely been left behind with limited employment and education opportunities. Institutional investment in rural areas or areas of low economic development is scarce as these investments are seen as more risky and less scalable. Recently, the U.S. government decided to spur capital allocation to these rural and other economically disadvantaged communities, thus the opportunity zone program was born. The Opportunity Zones tax incentive was created under the Tax Cuts and Jobs Act by Congress in 2017. Investors are offered tax benefits for their investment in the program including a temporary deferral of capital gain tax, step-up in basis, and/or permanent exclusion of capital gains invested in the program depending on the length in which capital gains are held within the program. The program encompasses 8,764 communities in the U.S. and 5 U.S. territories which totals close to 35 million people with a median household income of $33,345. Governors of each state were able to nominate up to 25% of eligible areas with eligibility depending on employment and income levels. The goal is to revitalize these distressed communities by providing tax incentives for investors to spur economic development. 75% of the areas chosen are metropolitan areas with the rest being rural areas or Native American territories.

                    Map of Opportunity Zones in the United States

                    Qualified Opportunity Funds

                    Investors can purchase property directly in opportunity zones and then improve or build upon it to receive the Opportunity Zone (OZ) tax benefits described below.  However, many institutional and individual investors would rather not have to be involved directly in the day-to-day management of real estate development projects or operating businesses. Qualified Opportunity Funds (QOFs) give investors the flexibility of the OZ tax benefits of the program while lessening the property or business management burden. QOFs must invest 90% or more of their capital within qualified opportunity zone properties and must provide for “substantial improvements” to the property, buildings, or equipment. These improvements can be significant for residential or commercial properties such as developing housing, senior living facilities, or workforce housing. While most of the opportunity zone program encompasses metropolitan property, some of the real property within designated OZ’s is farmland. The farmland in opportunity zones typically can meet the applicable improvement standards through the implementation of drainage tile or irrigation, organic conversion, or adding grain storage or green energy options like solar panels. Investment in farmland in opportunity zones can not only provide tax benefits with the attractive risk/return profile of farmland but also improve food production capacity for generations to come.

                    Opportunity Zone Program Tax Benefits

                    The Opportunity Zone Program is currently under review by lawmakers to extend the tax incentive period from 2026 (current end date) to 2028. The program offers investors three main tax benefits to attract capital into the program. The first benefit is a temporary deferral of taxes on capital gains invested in the program. Combining that with the next benefit which includes a step-up in basis for capital gains that are reinvested in the program by the end of 2028, the investment potential becomes very attractive. The basis is increased by 10% if gains are held in the fund for 5 years until 2028, then if gains are held within the fund for 6 years by 2028, the basis is increased an additional 5%. The third and final benefit is if the initial investment is held within the fund for 10 years, then it will have a permanent exclusion from taxable income once sold or exchanged. This tax exclusion applies just to capital gains appreciation after the initial investment in the qualified opportunity zone.

                    Example Investment in Farmland QOF

                    A challenge facing many farmers and landowners is the transfer of wealth to the next generation while not losing a significant amount of their wealth to taxes. As the saying goes, farmers are land rich but cash poor meaning many won’t have the cash available to pay those taxes. Let’s walk through a hypothetical situation. Let’s say we have a midwestern farmer named Bruce who owns just 100 acres debt free but could face long-term capital gains taxes on the property of $1,000,000 or more. Farmer Bruce wants to transfer the farmland to his daughter, Claire, but is likely going to be subject to capital gains tax on this $1,000,000 at a rate of 23.8%. Bruce is a farmer and would like to continue to see the agriculture industry thrive while benefiting from the risk/return profile of farmland that he has significant experience with. Bruce takes his $1,000,000 in capital gains and invests it in a qualified opportunity zone fund investing in farmland such as the Promised Land Opportunity Zone Fund. Let’s do the math on his investment under the proposed tax legislation.  Since farmer Bruce intends to participate in the opportunity zone program in 2022, he would be eligible for the 10% and 5% step-up in basis. If farmer Bruce holds the capital gains in the QOF for the entire 10-year hold and the investment earns an internal rate of return of 9% (consistent with Promised Land’s Fund I portfolio expectations), Bruce’s tax savings would be substantial. By investing the $1,000,000 in capital gains in a QOF, he would have a total benefit of $597,212 at the end of the 10 years compared to if he made a taxable investment in farmland outside of a QOF. Combined with the compounding benefit of the investment, the QOF investment in farmland would yield the farmer a 4.8% annual return benefit compared to a non-QOF investment in farmland achieving the same 9% annual pretax return.

                    Note: This is not tax or investment advice. Please see a tax or investment professional to see what is right for you

                    How Can I Start Investing in Qualified Opportunity Zone Funds?

                    The opportunity zone program is a superb tax structure to hold farmland for the long-term as well as catalyze enhanced food production and economic development in underserved rural American communities. To get involved in the program, an investor could choose to invest directly in farmland but as we have discussed that comes with active management by the investor. Investment in an institutionally scaled qualified opportunity zone fund is an ideal scenario for most investors. There are only few existing farmland QOFs because of the relative newness of the program and the unique expertise required. The only truly scalable QOF investing in farmland is the Promised Land OZ. Promised Land is an aligned joint venture of “Best-in-Class” partners. Farm property management is provided by Farmland Partners (NYSE: FPI), a leading farmland REIT with $1 billion in assets. Fund management is led by Servant Financial, Ltd., a Chicago-based investment management firm founded in 2003.

                    Promised Land is devoted to “investing in rural American communities where you live, farm, and play.”  As someone who has seen firsthand the disparities in economic and educational opportunities between country and metropolitan communities, I am encouraged by entrepreneurial organizations willing to invest their resources and time in rural America. Agriculture would not have progressed from farming with blind donkeys to GPS guided tractors without technological innovation and fertile investment in the future of food production. The Promised Land Opportunity Zone Fund wants to foster that same flywheel effect to bring about even more fruitful change to an industry that is responsible for feeding the entire world.

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