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Earlier this summer, we discussed the outlook for the 2024 growing season, noting that the income potential for agricultural producers appeared less than promising due to weakening commodity prices. The USDA’s Economic Research Service recently released its income projections for 2024, confirming what many in the market had anticipated. After adjusting for inflation, net farm income is expected to drop by $10.2 billion to $140.0 billion, or nearly 7%, from 2023 to 2024.

The decline is worrisome for many in agriculture, but this isn’t the first time we have experienced a reversion to the mean in farm income after a record-breaking peak as we did in 2022. Even glancing at the figure below from Farmdoc Daily, we can see these cyclical moments in agricultural history. Some of the more notable income troughs occurred in the 1980s, early 2000s, and the mid-2010s. As we look at the current landscape in the agricultural economy, it is important to look at where we have been and how it relates to future expectations.

The Crisis Years: 1980’s

“Go Big or Get Out”—the famous last words of former United States Secretary of Agriculture, Earl Butz. This rallying cry came after the United States negotiated a $750 million grain deal with the Soviet Union in 1972, promising U.S. farmers a steady income stream for years. However, this promise was short-lived. In 1979, after the Soviet Union invaded Afghanistan, President Jimmy Carter imposed a grain embargo on one of America’s key trading partners. As a result, farm commodity prices plummeted, and farmland values naturally followed suit. Isn’t it strange that some 60-odd years later, we’re still reading headlines about Afghanistan and sanctions and embargos of Russia?

The 1970s had been a time of prosperity for many in agriculture, as the new Russian demand drove commodity prices upward. With more money in their pockets, farmers sought to expand their operations, often by acquiring more land. Banks across the country were eager to lend vast amounts of capital, but these loans were often based on collateral values rather than the farms’ ability to generate consistent cash flow. When the Russian grain embargo was enacted by the Carter administration, many landowners found themselves unable to handle the debt service on the mortgages to purchase additional farmland, leading to a wave of farm failures across the country.

What parallels can we draw to today? The rising land values in recent years have led some to speculate whether we may be heading toward a repeat of the mistakes of the 1980s. Declining commodity prices have prompted those who lived through the Butz and Carter era to recall their experiences. While a tightening of farm incomes is inevitable, and some will be left behind, it is unlikely we will experience the same level of pain felt during the 1980s. Credit standards are now more stringent than ever, shaped by the lessons learned from the farm crisis. For example, Farmer Mac and the Farm Credit System will generally only lend up to 50% of the value of the farmland versus the much higher leverage of the 1980s. Furthermore, today’s average farm operation is larger, more financially resilient, and better equipped to manage the cyclical risk of agriculture, meaning most will weather the current conditions.

The Years After 9/11: The Early 2000’s

As we come up on the 23-year anniversary of that ill-fated day in September when almost 3,000 people lost their lives. The event marked changes in global trade and concerns over whether global markets could continue safely. Commodity prices were already low coming into 2001 and changes in government farm programs reduced subsidy payments to farmers. Direct government payments were nearly cut in half, declining from $20.7 billion in 2001 to $11 billion in 2002. The emergency payments that had bolstered net farm income since 1998 ended with the implementation of the 2002 Farm Bill and were replaced by counter-cyclical payments intended for farmers during low-commodity price years. However, a drought-reduced corn crop led to higher corn prices, resulting in no counter-cyclical payments being made in 2001. Additionally, due to government budgetary constraints and other political factors, Congress did not approve any farmer disaster aid. High yields in 2002 combined with low commodity prices led to the lowest real cash farm income since the Great Depression.

While the current situation isn’t exactly like that of the early 2000s, some are concerned about what could change when the next farm bill is passed. The most recent farm bill expired almost a year ago and the bipartisanship of the upcoming elections has stalled efforts for passage of a replacement Farm Bill. According to Jonathan Coppess, Professor at the University of Illinois, the chances of Farm Bill reauthorization in 2024 are extremely low due to a lack of progress in Congress and significant political and budgetary challenges. The House Agriculture Committee’s proposal to increase reference prices for certain crops lacks viable budget offsets, leading to further political division, especially with proposed cuts to the Supplemental Nutrition Assistance Program (SNAP).

The Fall after the Rise: The Mid 2010’s

In 2012, I experienced my first harvest behind the wheel of my family’s combine where I witnessed the most dry and barren crop I had seen in my 15 years. I thought maybe I was bad luck. However, even though crop yields in the drought-stricken Midwest were the lowest they had been in decades, crop insurance payouts and skyrocketing commodity prices bolstered farm incomes that year. However, the 2012 ag boom was short-lived as several years of strong crops caused grain stockpiles to grow and commodity prices to slip once again. Trade relations with the growing Chinese economy also became tense during this time over banned corn genetics being detected in crop imports to China. Later in 2013, the Environmental Protection Agency (EPA) decided to reconsider its Renewable Fuel Standards and proposed reducing the amount of ethanol blended into gasoline, sending grain markets into greater turmoil. Strong yields led the U.S. grain stockpile to grow and uncertainties regarding demand mounted throughout much of the mid-2010’s.

How does this situation parallel today? The future of ethanol is less certain, with the rise in demand for electric vehicles and China now sourcing its grain from a new global leader—Brazil. However, there is a bright spot on the horizon for biofuels. Innovations in soy biodiesel and soy-based jet fuel have prompted discussions about whether soy could be the feedstock for aviation fuels of the future. Consequently, soybean prices have remained more stable than corn in 2024, leading many farmers to consider planting more soybeans in 2025.

History Recap

Reflecting on these historical cyclical downturns, it’s clear that the agricultural economy has always been shaped by a combination of market forces, policy changes, and global events. While the challenges facing today’s farmers may bear some resemblance to those of the past, the lessons learned from previous crises have made the industry more adaptable and resilient. By understanding these cycles and the factors that drive them, we can better navigate the uncertain times ahead. While the future may hold new obstacles, it also brings more opportunities for growth and innovation. Farmers and industry leaders alike must remain vigilant, adaptive, and forward-thinking, preparing not just for the next season, but for the long-term shifts that continue to shape the landscape of agriculture. Despite the cyclical nature of agriculture, farmland will remain a sustainable source of food and fuel needed for humanity to thrive for generations to come.

Have you ever watched the 1983 hit Trading Places starring the beloved Eddie Murphy and Dan Akroyd? The movie's climax occurs when the United States Department of Agriculture releases the crop progress report as part of the World Agricultural Supply and Demand Estimates, also known as the WASDE for short. The monthly WASDE report provides annual forecasts for global crop production and use of cotton, oilseeds, rice, wheat, and coarse grains. I won’t spoil this classic film, but the WASDE report released in the film included market moving information on the orange crop in Florida. Traders dressed in specialty jackets in the trading pits immediately reacted, causing the price of orange juice futures to fluctuate. Even in 2024, the WASDE brings potentially significant market movements for agricultural commodity prices and financial impacts to the suppliers and users of those products.

The movie does an excellent job of depicting how important the WASDE and other USDA reports are and how the USDA works to keep it confidential until the report’s release date. In preparation for the WASDE, USDA analysts are locked in one room where they aren’t allowed to leave sometimes for more than 24 hours. USDA analysts complete data collection from domestic and foreign sources to estimate the supply and demand for corn, soybeans, wheat, and other crops. Ultimately, the USDA determines an average price based on supply and demand factors. The supply for crops is based on current plantings and/or harvested acres, the amount exported, and also on the ending stocks from the previous month. The demand or use forecasts are determined discretely by each crop. Corn for example has three main uses: animal feed, industrial uses like ethanol, and food production.

The report is closely watched year-round, however, American farmers pay extra close attention during the growing season as it can have decidedly favorable or unfavorable impacts on their bottom line. 2024 is no different. The United States has largely had a favorable growing season so far. Late June and early July rains in the Midwest have not only kept the grass green but the corn and soybean crops are thriving. Some areas in Texas and the Dakotas haven’t been as lucky but the largest producing corn and soybean states also known as the “I” states, Iowa, Illinois, and Indiana, have experienced mostly positive growing conditions. Strong growing seasons are a double-edged sword, however. On one hand, farmers will always want their crops to do well but if everyone raises a strong crop then that means the prices are likely to decline as crop yields rise across the board. In some competitive respects, Illinois corn farmers hope there will be a drought in Iowa or Nebraska while Kansas wheat farmers hope for excessive rains in North Dakota. The loss for one geography means potentially better income opportunities for another.

The strong growing conditions across the “I” states have bred less-than-ideal commodity prices with the average cash price of corn coming in at $3.95/bushel for 2024. Just for reference, the average price of corn in 2023 and 2022 was $4.88/bushel and $7.43 respectively. This equates to billions of dollars in lost farm revenues. Soybean markets are experiencing a similar story with the average cash price of soybeans so far in 2024 at $11.10/bushel. In 2023 and 2022 the price of soybeans per bushel was $14.16 and $14.50. Even though crop yields are looking to be favorable relative to recent crop years, the low prices have USDA analysts expecting 2024 net farm income to drop to 24.1% from 2023. Thankfully the Federal Crop Insurance program includes Revenue Protection features that largely protects farmers against severe losses but it is unlikely that farmers will achieve close to record-breaking income levels like the past few years.

Markets are often built around USDA reports such as the WASDE and other crop progress reports. The most recent WASDE was released on July 12^th which showed some opportunities on the demand side of the balance sheet. Both corn and soybean ending stocks were lowered based on increases in forecasted demand greater than estimated production increases. Ending stocks represent the estimated production less demand/uses for a particular crop and the USDA is forecasting greater uses for 2023/2024 corn. On the other hand, both corn and soybean production are up from the June report which is based on acreage reporting and yield estimates. As the growing season continues, it is common for forecasted ending stocks to be adjusted as more acreage reports come in and crop yield estimates are tweaked. Some analysts believe the USDA’s production numbers may be overly ambitious however it is difficult to truly tell what average yields will be until we are well into harvest.

The next WASDE will be released on August 12^th and this month will also kick off the Pro Farmer Crop Tour, a highly anticipated event for farmers across the Midwest. Scouts in Illinois, Indiana, Iowa, Minnesota, Nebraska, Ohio, and South Dakota report corn and soybean production estimates on 2,000+ different fields. The tour helps analysts refine yield estimates as it occurs after pollination. The USDA watches this tour closely when adjusting its own reports.

As we head into August and September, supply and demand estimates will continue to shore up and farmers will be gearing up for harvest time. Farmers in the South will likely be heading into corn and soybean harvest in August while the Midwest regions typically kick off harvest in early to mid-September. The sky above Champaign, IL is now full of crop dusters spraying fungicides as corn and soybeans begin pollination and Illinois farmers are itching to see how their crop compares to the rest of the country. Farmers are watching markets closely hoping for a reversal of the downward price trend that has been the story for much of 2024. Many farmers have chosen to pre-sell their crops before harvest; however, the less-than-ideal crop prices so far may have some farmers playing a bit of the waiting game. It’s too bad farmers don’t have the likes Billy Ray Valentine (Eddie Murphy) and Louis Winthorpe III (Dan Aykroyd) to do their hedging.

“Think big, think positive, never show any sign of weakness. Always go for the throat. Buy low, sell high. Fear? That’s the other guy’s problem. Nothing you have ever experienced will prepare you for the absolute carnage you are about to witness. Super Bowl, World Series – they don’t know what pressure is. In this building, it’s either kill or be killed. You make no friends in the pits, and you take no prisoners. One minute you’re up half a million in soybeans and the next, boom, your kids don’t go to college and they’ve repossessed your Bentley. Are you with me?” – Louis Winthorpe, Trading Places

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)

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.

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.

Introduction

Growing up on a family farm in rural Illinois, I was taught the importance of taking care of the land to preserve it for the next generation. Farming is not only about maximizing profits, but also about adopting sustainable farming practices that benefit the soil and environment to preserve the land for future generations. The soil is a living, breathing organism, and if cared for correctly, it can have both favorable environmental and economic impacts. Farmers did not always have the right technology and sufficient knowledge about these complex and delicate ecosystems to be able to properly care for the soil in the past. For example, the Dust Bowl of the 1930s was partially caused by harmful agricultural practices that left the soil exposed and vulnerable to erosion. The Dust Bowl is an extreme example of a man-made ecological disaster. Naïve farmers of the 1920s conducted extensive deep plowing of the virgin topsoil of the Great Plains.

The technological advancement of the combustion engine led to the widespread use of the combine harvester and the rapid and extensive conversion of naturally arid grasslands to cultivated cropland. The native, deep-rooted grasses of the Great Plains would normally trap soil and moisture during periods of drought and high winds. However, the unanchored cropland soil turned to dust in the drought of the 1930s and prevailing winds blew the soil into huge dust clouds that blackened the sky. The ecological and human tragedy of the Dust Bowl was famously retold in the novel The Grapes of Wrath (1939) by John Steinbeck. And if you think an agricultural-based ecological disaster like the Dust Bowl can not happen in this day and age, check out the organic-focused, mini-dust bowl called Gunsmoke in South Dakota.

As agricultural technology has evolved, and researchers have learned more about the ecological interplay between crop production, the soil, and the environment, more emphasis has been placed on preserving soil health. In the 1980s, a movement to reduce the amount of tillage on farms began to grow, and now no-tillage or reduced tillage is used on many farms today. Tillage is the preparation of soil prior to planting and the cultivation of soil after the harvesting of crops. A new focus on the environmental impact of agriculture also began at this time. Today, farmers have more technology than ever to benefit the environment, and there is still a lot of research being conducted around sustainable or “climate-smart” agricultural practices.

This trend culminated in the January 27, 2021, Executive Order 14008: Tackling the Climate Crisis at Home and Abroad from the Biden Administration which promotes climate-smart agriculture as a way to mitigate climate change. The Executive Order specifically mentions agriculture and states: “America’s farmers, ranchers, and forest landowners have an important role to play in combating the climate crisis and reducing greenhouse gas emissions, by sequestering carbon in soils, grasses, trees, and other vegetation and sourcing sustainable bioproducts and fuels.” So, what exactly does climate-smart agriculture mean, and what practices are considered climate-smart? The USDA’s Climate-Smart Agriculture and Forestry Strategy: 90-Day Progress Report defines climate-smart practices as activities that store carbon and improve resilience and soil health. Some examples of these activities from the report are: reduced and no-till, planting cover crops (crops grown for the protection and enrichment of the soil), managing the grazing of cattle, managing the way cows are fed, manure management, fertilizer management (efficient use), improved irrigation efficiency (reduced water usage), reduced fuel use, energy conservation, and improved forest management. The most widely used definition for climate-smart agriculture is from the Food and Agricultural Organization of the United Nations (FAO) which defines climate-smart agriculture as “agriculture that sustainably increases productivity, enhances resilience (adaptation), reduces/removes GHGs (mitigation) where possible, and enhances achievement of national food security and development goals1.”

Current Practice Adoption

Many different agricultural practices are considered climate-smart agriculture. But how many farmers are actually using climate-smart practices on their farms? USDA’s National Agricultural Statistics Service (NASS) and ERS (Economic Research Service) conduct a national-level survey of farming operations called the Agricultural Resource Management Survey (ARMS). Three of the most commonly used climate-smart practices on US farms are reduced and no-till, cover crops, and fertilizer management. Cover crops are crops planted on fields when there is not a cash crop growing. Cover crops keep the soil covered to slow erosion, improve soil health, prevent nutrient losses, and a host of other benefits. Farmers apply fertilizer to their farm to ensure plants have the proper nutrients to grow. The most commonly applied nutrients are nitrogen, potassium, and phosphorus. However, if improperly managed or applied, these nutrients can be lost into the environment through the air or water and cause environmental damage.

Information about the adoption of these practices is available in the ARMS survey data. The chart below shows the most recent survey data regarding tillage in the US.

The survey suggests farmers use conservation tillage on 70% of soybean (2012), 65% of corn (2016), 67% of wheat (2017), and 40% of cotton (2015) acres in the US².

Although conservation tillage adoption is high, cover crop adoption in the US is still very low, but increasing. Cover crop adoption totaled 15.4 million acres in 2017, a 50% increase from the 10.3 million acres planted in 2012. This is equal to only 3.9% of US cropland³. The survey also found farmers use nitrogen at higher rates than the recommended benchmark application rate on 36% of corn acres, 19% of cotton acres, 22% of spring wheat acres, and 25% of winter wheat acres⁴. There is a lot of opportunity for future adoption and improvement when considering climate-smart agricultural practices in the US, particularly in the use of cover crops.

Increased Incentives to Promote Adoption

Farmers can receive financial incentives for the adoption of climate-smart agricultural practices on their fields. The policy focus on climate-smart agriculture could also lead to new opportunities and increased governmental financial support for farmers. One option for farmers is the USDA’s Environmental Quality Incentives Program (EQUIP) which provides financial and technical assistance to farmers and forest managers. The USDA’s Natural Resources Conservation Service (NRCS) administers EQUIP. Through EQUIP, NRCS provides farmers with financial resources and one-on-one help to adopt conservation practices⁵. NRCS has identified a sub-set of conservation practices critical to climate change mitigation to encourage farmers to adopt these specific climate-smart agricultural practices. Another governmental program that can provide financial support for farmers who adopt climate-smart agricultural practices is the Conservation Stewardship Program (CSP). The CSP helps farmers adopt conservation practices on grazing and pasture lands⁶. Farmers also may be able to receive benefits from adopting climate-smart agricultural practices through Federal crop insurance programs managed by the USDA. For example, the USDA’s Pandemic Assistance for Producers initiative will provide a $5 per acre reduction in crop insurance premiums to farmers who plant a cover crop. Illinois, Indiana, and Iowa have existing programs for farmers to receive a payment for planting cover crops as well⁷.

Ecosystems markets are another way of promoting climate-smart agricultural practices and can bring additional revenue to the farmer. Agricultural carbon market programs pay based on carbon sequestered or emissions reductions achieved on farmland and can generate additional farm income and further incentivize sustainable farming practices. For example, Indigo Ag announced payments of $30 per credit to Carbon by Indigo farmers for verified credits produced and sold in both the 2020 and 2021 carbon crop years. Carbon credits are based on the amount of carbon dioxide the farmer either draws down into the soil and GHG (Green House Gas) emissions the farmer reduces above the soil (for example, through improved nitrogen timing) – beyond what was already happening on the farm. One carbon credit is typically issued for each metric ton of carbon dioxide sequestered or reduced. Other ecosystem services have similar pilot programs, such as Ecosystem Services Market Consortium (ESMC) ‘s water quality, water use conservation, and biodiversity credits⁸. These programs try to place a value on the benefits of environmentally friendly agricultural practices on water and biodiversity to generate a saleable credit. Many of these markets and programs are still in the development or pilot phases. There could be additional opportunities in the future for farms to generate incremental revenue by valuing the environmental benefits these practices provide. For example, the recently passed Inflation Reduction Act (IRA) will provide more than $20 billion to support climate-smart agricultural practices. The IRA legislation provides multi-year funding to the USDA’s EQUIP and other conservation programs to promote the reduction in greenhouse gas emissions from farming and for the capturing, sequestering, and storing of greenhouse gases in soils. These government-backed and ecosystem-backed climate-smart ag compensation regimes will eventually create more diverse and valuable revenue streams for farmers and farmland owners and potentially a significant valuation uplift for farmland.

Investing in Climate-Smart Agriculture

Promised Land Opportunity Zone is taking a pragmatic approach to investing in climate-smart agriculture. Recognizing the growing demand for organically produced grains, climate-smart agricultural practices, and carbon farming or carbon sink programs, we identified the Leading Harvest Farmland Management Standard as the most popular set of sustainable farming practices. Leading Harvest was formally organized in 2020 by and for all stakeholders across the agricultural value chain—from farmland owners to companies to communities. Leading Harvest provides assurance programs comprised of standards, audit procedures, training and education, and reporting that are optimized for flexibility, scalability, and community impact. More than 1.3 million acres across more than 100 crop types have enrolled in Leading Harvest’s Standard. Through Leading Harvest’s third-party certification process, farmers and landowners can demonstrate land management and operational practices are achieving a high level of sustainable stewardship, including in the areas of soil health, energy use and climate change, biodiversity, farm labor relations, and waste management.

Promised Land OZ’s first step in this climate-smart investment was to engage Averum, an accredited, third-party certification body, to conduct a pilot readiness assessment of the sustainability standards and requirements of Leading Harvest Farmland Management Standard. This baseline assessment commenced earlier this month with Averum’s site visit to Promised Land OZ’s 4,000 acre McCotter PLOZ Farm in Pamlico County, North Carolina. Averum’s auditor met with Manager John Heneghan, Farmland Partner’s farm manager Liz Strom, and our tenant farm operator Split P Farms. Averum surveyed the Promised Land team on Leading Harvest’s 13 sustainability principles:

Averum is wrapping up its field work and working through follow-up questions and information requests before issuing its readiness report to Promised Land.

Here is a video sneak preview of the sustainable farming practices of Split P Farms we expect to be deployed on McCotter PLOZ Farm over time. Please note Split P Farms has only been on McCotter since the beginning of this year. Split P Farms is a farmer tenant of acreage owned by our property manager Farmland Partners where he has successfully employed no-till and cover crop farming practices. As he says “We like to think that we are the curve and everybody’s trying to catch us.”

In addition, we believe Promised Land OZ’s focus on capital investments that improve the sustainable, productive capacity of the farmland acquired, such as drainage tile and water management, farmland conservation, irrigation equipment, and grain bin storage projects are naturally aligned with Leading Harvest’s sustainable farming principles. We look forward to receiving Averum’s feedback on the McCotter PLOZ Farm pilot assessment.

Conclusion

Promised Land OZ has made multiple investments in climate-smart agriculture on their farms because of a belief that preserving the land for the future is important. Soil, water management, and farmland preservation are prudential investments that we believe will pay off in the long run. Adopting these practices will add value to the land by improving the soil health and resiliency and has the potential to generate additional revenue streams for ecosystem services. Many of these programs and opportunities are still in development, but this will be a topic to watch in the future. These opportunities bring value for all involved: the environment, farmers, and farmland investors. I am proud of the way my family and Promised Land OZ are caring for the farmland under their stewardship, and I know their efforts will benefit the land for generations to come.

References

“What is Climate Smart Agriculture?” https://csa.guide/csa/what-is-climate-smart-agriculture
Claassen et al. 2018. “Tillage Intensity and Conservation Cropping in the United States.” https://www.ers.usda.gov/webdocs/publications/90201/eib-197.pdf?v=6118.1
Zulauf, C. and B. Brown. “Cover Crops, 2017 US Census of Agriculture.” farmdoc daily(9):135, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, July 24, 2019.
Wade et al. 2015. “Conservation -Practice Adoption Rates Vary Widely by Crop and Region.” https://www.ers.usda.gov/webdocs/publications/44027/56332_eib147.pdf?v=6515.1
USDA NRCS. “Environmental Quality Incentives Program.” https://www.nrcs.usda.gov/wps/portal/nrcs/main/national/programs/financial/eqip/
USDA NRCS. “Conservation Stewardship Program.” https://www.nrcs.usda.gov/wps/portal/nrcs/main/national/programs/financial/csp/
USDA RMA. “Producers with Crop Insurance to Receive Premium Benefit for Cover Crops.” https://www.rma.usda.gov/en/News-Room/Press/Press-Releases/2021-News/Producers-with-Crop-Insurance-to-Receive-Premium-Benefit-for-Cover-Crops
“ESMC Partners with the Conservation Innovation Fund to Create Innovative Water, Carbon, and Biodiversity Credit Opportunities in the Mid-Atlantic.” https://ecosystemservicesmarket.org/esmc-project-mid-atlantic/

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 5^th 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.

The Crisis Years: 1980’s

The Years After 9/11: The Early 2000’s

The Fall after the Rise: The Mid 2010’s

History Recap

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August 2023 Agriculture Industry Update

Crop Progress Update

Financial Update

Farmland Values Update

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Introduction

Current Practice Adoption

Increased Incentives to Promote Adoption

Investing in Climate-Smart Agriculture

Conclusion

References

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What are Opportunity Zones?

Qualified Opportunity Funds

Opportunity Zone Program Tax Benefits

Example Investment in Farmland QOF

How Can I Start Investing in Qualified Opportunity Zone Funds?

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