Farmland Partners Inc. (FPI) Q1 2021 Earnings Report, Transcript and Summary

Good morning, and welcome to the Farmland Partners, Inc. First Quarter 2021 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Paul Pittman, Chairman and CEO. Please go ahead.

Thank you. Good morning and welcome to Farmland Partners first quarter earnings and conference call and webcast. We always appreciate your taking the time to join us for these calls because we see them as a very important opportunity to share with you our thinking and strategy in a format less formal and more active than public filings and press releases. With me this morning is Luca Fabbri, the company’s Chief Financial Officer. I will now turn the call over to Luca for some customary preliminary remarks.

Thank you, Paul, and thank you all for listening to this webcast live or recorded. The press release announcing our first quarter earnings was distributed earlier this morning. A replay of this call will be available shortly after the conclusion of the call through May 27, 2021. The phone numbers to access the replay are provided in the earnings press release. For those who listen to rebroadcast of this presentation, we remind you that the remarks made herein as of today, May 13, 2021, and have not been updated subsequent to the initial earnings call. In the Investor Relations section of our website you can find a presentation with supplemental information that we’ll refer to during this conference call. During this call, we will make forward-looking statements, including statements related to the future performance of our portfolio, our identified and potential acquisitions and dispositions, impact of acquisitions, dispositions and financing activities, business development opportunities as well as comments on our outlook for our business, rent – businesses rent and the broader agricultural markets. We also will discuss certain non-GAAP financial measures, including net operating income, FFO, adjusted FFO, EBITDAre and adjusted EBITDAre. Definitions of these non-GAAP measures as well as reconciliations to the most comparable GAAP measures are included in the company’s press release announcing first quarter earnings, which is available on our website, www.farmlandpartners.com, and is furnished as an exhibit to our current report on Form 8-K dated as of this morning, May 13, 2021. Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations, and we advise listeners to review the risk factors discussed in our press release this morning before market open and in documents we have filed with or furnished to the SEC. I would now like to turn the call back to our Chairman and CEO, Paul Pittman. Paul?

Thank you, Luca. So today I’m going to discuss a couple of different things, the first quarter results, I will also discuss some of the macro factors going in the market generally, and I will also discuss our continued effort to shift from a position of asset sales and stock buybacks to a more growth-oriented company. So first starting with the highlights of the quarter and Luca will go into these in more detail. But this is really a very strong quarter for us, but for the litigation expense. Just to give you one metric and one comparison. In the first quarter of 2020, a year ago, adjusted for litigation, we had approximately $300,000 negative AFFO. In Q1 2021 adjusted for litigation we had approximately $900,000 positive AFFO. That’s a very significant swing. There are a lot of different things going on in those numbers. And as we always caution, quarterly numbers are jumpy and volatile, but it is certainly a very strong positive move in the right direction and demonstrates what we think is the beginning of a multiyear cycle of very strong quarterly and annual performance in the portfolio. We have begun in the first quarter in earnest to shift the company back to a growth mode as discussed in the 2020 earnings call back in March. Prior to that, we were an asset disposition and stock buyback mode, but we started to discuss acquisitions and other things to put the company back on the growth path. We really began that in the first quarter of this year. As our press release indicates, we started an acquisition program again, we bought about $2.9 million of assets. We bought those assets without any debt. We bought them entirely with equity and which is part and parcel of our desire to gradually delever the company. Speaking of leverage, we reduced our debt by $20 million and bought back some amount, frankly, a slight amount of the Series B preferred. We will continue that effort in future quarters to further delever the company. We also finished the setup and started to establish substantial AUM in the off-balance sheet vehicle related to the opportunity zones. We will continue these growth and deleveraging strategies in the coming quarter. Our goal is to increase the scale of assets under management, both off-balance sheet and on-balance sheet. So we can spread the overheads of the company over a bigger asset base. We will continue to reduce leverage as I’ve mentioned. And we believe we’ll be able to substantially increase rents in the coming quarters as we have about a third of the portfolio will roll over this summer and fall. And we think we’ll be in a position for very strong rent increases on those new leases. Turning to net asset value for a moment. I think we are now right in that sort of $14 per share range of net asset value. I think it is gradually going up, it’s really difficult to measure absolute property value increases on anything shorter than an annual basis. There’s just not enough statistical data, but we think we’re in a position where we’re going to see land value appreciation for the year come in pretty strong and continue for several years in the future. Turning to the slides that we have on the website, it’s under the Investor Relations tab of our website farmlandpartners.com. I want to touch on just a couple of sort of macro themes that are really important to the company at this juncture. So the first slide on Page 3 is the slide we presented last quarter, but I start almost every presentation with this slide. This is the most important thing about the Farmland asset class. We are seeing gradually increasing food demand, driven by population growth and GDP per capita gains in the developing world against a massive decline in tillable or arable acres per person across the world. This trend should continue for a long, long time. It is at this point set, it’s measured in 50 year increments at this point in time. We do not think it will change. And this is what really drives the long-term value gains for Farmland. But we are also seeing elevated – in the more near-term elevated farmer profits, which in our view will be here for several years. What is behind that is a demand driven bull market, largely driven by Chinese and other Asian demand for food stuffs out of the United States in particular, but that demand driven bull market for the primary food commodities is exacerbated and strengthened by a slight hiccup in productivity that began late last summer in many of the growing regions of the world. We’ve seen incredibly strong price recovery in the key commodities. We think we are set up for several years of very strong profitability for farmers. So what we have is sort of two sources of wind at our back, one is the general trend of increasing food demand and land scarcity, which really goes on all the time and on top of that, at least for next few years, very strong profitability increases for farmers. Turning the page just to talk about that income increase for farmers, what we've – and this is a page called demand growth and productivity gains. What we have mapped on this page is for both corn and soybeans based on mostly U.S. DA data, an approximation of kind of profitability in each year that a farmer experiences on the two different crops. And then on the far right hand side of that graph, we took the 2020 years, the most recent years where we have actual numbers. And we said, what is that look like, if you just change commodity price for the corn and the soybeans. And we did it in two different ways. We looked at corn in the context of two different pricing scenarios. One of which was $5 a bushel and the other, which was $6 a bushel. December corn now is just under $6 a bushel. It was a little bit over a few days ago to give you a frame of reference. And then we did it on the same thing on soybeans. And we looked at soybeans at $12 and $14 a bushel. And when you look at that, and these are the two bar charts on the far right of the page, you see an incredibly strong increase in per acre profitability for these farmers. Using corn as an example, it's quite realistic to think that a farmer will get something in the neighborhood of $200 to $250 an acre more profitability this year, maybe in some cases as much as almost a $400 an acre of increased profitability. Soybeans, of course, are not quite as strong, but the story is similar. This drives farmer optimism, drives farmers’ acquisitions of equipment, and all certainly drives farmers’ acquisitions and interest in expanding their operation. So this is a very important factor. We believe it will last for several years, although there is certainly never any certainty about that. Turning to the next page, and I mentioned earlier in my remarks that Chinese demand for foodstuffs in particular is a large, large driver of these changes in commodity prices, but also a large driver of global increases in food demand. And the chart here on this page just sort of demonstrates that. There is a – today, and it's already mostly in place, frankly, on shipments already made. But there is an expectation that corn imports into China will grow by 300% from the 1920 marketing year to the 2021 marketing year, which is the one we're in today. Some sources estimate it could be as high as 400%. This is just an example. And frankly, the most extreme example in corn all those relatively strong increases in the other key commodities soybeans, the soy meal, soy oil into China. This trend, we believe will continue as they rebuild their hog herd in particular and change the way they feed that livestock. Then turning to the final slide in our presentation, and I put this slide in because it is so timely. It’s, in fact, when I read the papers and things this morning, it's a key topic in the business news, is that we really are on the brink of if not already experiencing inflation. Despite the way the fed may look at inflation, when you look at many different durable goods and assets, we are already seeing quite a bit of inflation. The graph on the page is frankly, quite noisy. The blue line is inflation and the red line is farmland appreciation. And there's some data collection issues in the way the U.S. DA pulls this data together. But if you smooth that red line, what you would see is, what it says in the far right hand column of the table, that there is almost always a positive and pretty significant spread between farmland appreciation and inflation. Fundamentally, Farmland is a very good hedge against inflation. We think that Farmland valuation and investors will benefit from exposure to Farmland during – because of this sort of well set trend in positive spread to inflation. Turning to sort of one last comment that I want to make, this previously discussed Rota Fortuna litigation, which is costing us quite a bit of money per quarter will eventually end. We think the – you and the market should expect elevated spend on those cases to continue for at least a couple more quarters, but it will end eventually, and we believe it will end with success. So before I turn it back to Luca, just to summarize, we think, frankly, a strong quarter beginning of the growth – a new growth phase for this company, and we will continue to move forward on that vein in the next quarter. With that Luca you can go with your remarks.

Thank you, Paul. As Paul has mentioned this just now in his remarks, we feel that the company's performance in this quarter was actually quite strong. However, the financial results were really clouded by the significant legal and accounting expense, specifically the legal spend related to the Rota Fortuna litigation. So in a bit of a departure from task practice, I will mention now some of the – our performance indicators also excluding about $2.5 million of Rota Fortuna litigation related expense that we incurred in the first quarter of the year. So for the quarter, we recorded the total operating revenues of $11.6 million, as compared to $11.7 million for the same period in 2020. So again, pretty strong performance considering our portfolio has shrunk a bit over this period of time. And in the same two comparable periods this year, we record the total operating income of $3.1 million versus $5.3 million in the same period of 2020. However, adding back those that legal spend, as I mentioned, the performance this year would have been $5.6 million. In the quarter, we recorded basic net loss to common stockholders of $0.02 per share, moving ahead the basic net income of $0.07 per share without those litigation expenses, as compared to a net loss of $0.09 per share in the same period of 2020. And finally, for AFFO in this quarter, we recorded a negative $0.05 versus negative $0.01 in the same period during in 2020, but this year it would have been a positive $0.03 performance without those legal expenses. In the quarter, we repurchased about 8,300 shares of Series B preferred by about $25.82 average price. Subsequent to the end of Q1, we purchased an additional about 16,800 shares at $25.98 average price, so total since the beginning of the year so far, we have repurchased 25,073 shares of Series B preferred at an average price of $25.93 for a total of approximately $650,000. Finally, on the debt side, in the quarter, we repaid approximately $20 million total in debt of that $10 million was a prepayment just not related to any specific asset dispositions and therefore, our need to free up collateral. As of today, the total fully diluted share count 32,319,978. This concludes my remarks. Thank you for your time this morning and your interest in Farmland Partners. Kate, we would like to begin the question-and-answer session.

[Operator Instructions] The first question is from Rob Stevenson of Janney. Please go ahead.

Good morning, guys. Paul, what determined the 14 dispositions, was that attract to pricing? Was that farms and/or crops that you wanted do reduce exposure to? Was there any significant concentration in terms of those farms in terms of crops or location?

A very good question, Rob, and I probably should have covered it in the prepared remarks. The big driver, I think almost $21 million or $22 million of the $25 million – of the roughly $28 million of dispositions were the assets we contributed into the Opportunity Zone Fund. So we still maintain management fees on those assets. That's part of our effort to expand our AUM. So the Opportunity Zone Fund was seeded with some of our own assets. Further growth will probably largely come from third-party – true third-party acquisitions of properties that we don't own today. But that was the big driver. It wouldn't – the remainder of the dispositions, we’re really thinks we already had deeply in process before we kind of made that shift from asset sales and stock buybacks back to growth. And we want to be perceived in the marketplace as a very good counterparty in sales and purchase transactions. So you're always, when you make that shift, you're already so deep into a transaction counterparties have spent money on diligence, things like that. And we basically went ahead and finished those transactions up. Because I think it's the ethical and appropriate thing to do.

And Rob, by the way, just Paul use the term contributed. Those are actually sales, 90% of the sale price actually came to us in cash. So we generated cash for us to redeploy other OIs.

Good point. A good point.

Okay. And then what is – what are you getting in terms of fees off the asset management business? How should we be thinking about that either revenue off the existing $21.5 million, or as a percentage of what you're likely to be get as you grow that and what level of expenses are going to be associated with that?

So I don't know if we have this in the public domains. I don't think so. But I can give you – I can frame it for you without giving you an exact number. We receive from the Opportunity Zone vehicle fees based on assets under management. So whether it's levered, growing levered is irrelevant. It's based on assets under management. And those fee levels are set to be modestly in excess of the overheads of the company today, running it as a public company. So the profit margin for us running a private vehicle with the same essentially cost and charge is pretty beneficial and pretty powerful to the public vehicle, so that's – if you need further information on that Rob, feel free to call us later and I'll check the documents and see what we have in the public domain. And I can maybe – we can take it a little farther for you if it's important to you.

And also to add a little bit to what Paul said, if these OZ Fund were to scale up significantly, we might eventually have to incur additional expenses. But right now we expect to perform all the activities and generic those revenues without tool additional expense items.

Okay. And that stuff – is that stuff considered good income for repurposes? Or is that basically need to be in some sort of taxable subsidiary?

No, it is segregated in our TRS.

Okay. And what line item does that appear on that income statement?

We don't have any material right now. It would be under other writing.

Okay. And then I guess Paul…

Just to add, that was set up in the – that's formal sale of assets and getting off the ground of the Opportunity Zone Fund was only in the first couple of weeks of March. So just a tiny impact in Q1 and Q2 will be the first time you start to see those numbers come through.

Okay. And then what type of crops and locations where the two acquisitions you made during the quarter?

The acquisitions were all in the Midwest tend to be primary row crops, largely speaking were adjacent to – loosely adjacent to the land that we already owned. So nice good acquisitions and fit in our portfolio quite nicely. Hopefully, there'll be more to come in future quarters.

Okay. And then last one for me. What is the Series B callable?

The first call date on the Series B is the very beginning of October of this calendar year. Erica, our General Counsel, who happens to be in the room with me, Rob, just to follow-up on your question. So this is fully in the public domain. I can tell you that the exact fee level we get, 85% – 0.85%. So just under 1%, 0.85% fee on the assets in the Opportunity Zone. Thank you, Rob.

Okay. All right. And then I guess the question winds up being, so the Series B is callable at par in October, why pay more than par for it now?

Well, it's callable at par plus appreciated value, is that how the doc really works. And so we don't think we're paying above par – above what par is going to be as of the new – there'll be another pricing roughly August 5 or so, when the USDA farm land values survey is released. And so we don't think we're above where it's going to be at that point in time, by any means. But the other reason is to get – getting rid of that 6% dividend on that has been a drag on the company's earnings power is important to us. And it's all part of this general effort to overall delever the company. Just to take your question one step further than you actually ask. So the first call date is October, where a company is not any pressure to actually do anything. We have three years after that date to either payoff with cash or convert that preferred into common equity. So we would love to manage our way out of that security, but we're not really under any pressure. It's really just the beginning of a three-year period where we can work on that starting October 1.

Okay. Thanks guys. Appreciate the time.

Great. Thank you.

The next question is from Dave Rodgers of Baird. Please go ahead.

Paul, Luca, good morning and appreciate the comments and the messaging around growth, Paul. I guess I wanted to go to the rollover of your farms this year. You showed a 30% to 50% profitability potential jump in your row crops, which is obviously the first we've seen that in a while. As you look at the roll over this summer. And you confirm you said one-third of the portfolio rolls. And how do you view the lease roll-ups that you anticipate to see the summer? Just given some of the strengths that you're starting to see now?

Yes. So we have around 59,000 acres rolling over this summer. That's a lot of acres. It's still roughly one-third in the value context, because some of that rollover is for example, Eastern Colorado, where acres are less expensive. So think of it as one-third, this is probably a slightly bigger than normal year. So maybe 40% will have the portfolio valuables over this summer, I don't want to give you specifics because I'm sure we have farmers and tenants listening to this call and we're negotiating with them on these things. But I think you will see rent increases that are probably frankly a low of 5% on most row crop farms. A lot of 10% increases in row crop farm rents. And there will be some that are greater than 10%, 15% or more in some cases. This is the industry dynamic is that land values and lease rates in a tough farm cycle more or less stay flat. We talked about that and Dave, we appreciate you being with us ever since the IPO, as an analyst. We've always said you're going to sort of stand more or less still with possibly a little downward pressure or little moves up when the farm economy stinks. And when the farm economy gets strong, you have – this is where grain prices do matter and not directly to land value, but to rents, you will have the opportunity to make material jumps in your rents. The way to intellectually about that or mathematically think about it in the best row crop regions, you're trying to get a $0.35 to $0.40 of every revenue dollar as a landlord. In the lesser quality regions, it's more like 25% of every revenue dollar. But when you – that chart, I presented in my prepared remarks, you start talking about $100, $200, $300 increases in revenue per acre and recognize it's corn and soybean rotation in the best land. So you got to kind of take the midpoint of the improvement in the two crops. It's not unlikely to see $25, $30 increases on rents. That's frankly, 10% of a $300 sort of rent. And I think you're going to see, as I said, more than 10%, in some cases. I hope that helps give you a little more clarity. We're going to do the best we can. And now that I've said these things, when I asked somebody for a 25% increases, they're going to say, you said on the conference call 10% or 15% at the best, but we're going to push them as frankly as hard as we can. We are tenants do need to make money and be profitable. But it's been a tough couple of years for us and our shareholders as well. And we intend to get our shares of this – our share of this increasing revenue now when we can.

I appreciate all that color, Paul. That is helpful. As you look at the mix of that one-third of the value that comes do it, not necessarily sure that the specialty crops are experiencing the same benefit. And so I wanted to ask specifically on specialty and what the mix is this year in that one-third rolling over between kind of specialty and row crop. And just as we think about the balance?

I think it is, and Luca, you may want to look at if it's anything we can look at, that'll help us know this. But it is more weighted to row crop than specialty this year. But it's – you're talking value versus acres. So I don't really have a crystal clear answer for you. But there's an awful lot of row crop in that. Turning just a specialty and what's going on there, we made a small comment, I believe in the press release on this, the specialty crop troubles that farmers and therefore us had last year related to a lot of variable income in the specialty side of our portfolio. We think we are at least as good as last year and cautiously optimistic that we're better off, but it's really early in the season, right? It's very hard at this juncture to – we haven't had any big problem that makes us think that volumes will be way down in the tree nuts or the citrus or anything. But on the pricing side, that's still a – there's a long ways to go in terms of the actual production of the product. And then on the pricing side, there's still a long ways to go in terms of international supply demand characteristics that will affect pricing of key specialty products in the U.S. So we're feeling, okay, about it. But you need to take the okay with a grain of salt because of the, just how early in the calendar we are. Hopefully when we update, after the second quarter, we can get a little higher level of certainty in terms of where we think that specialty product side of our portfolio will come out.

And Dave, by the way background since given the prevalence of variable leases in specialty crops, the impact of lease rollover on specialty crops is really not particularly high. So generally speaking, when we make comments about lease rollovers, we have really a little bit more skewed towards our row crop portfolio.

That's a very good point. You can say you got a better lease in specialty crop, but since so much of that lease revenue is variable. Good negotiation isn't the end of the story. As you got to grow the crop and get the right price worth.

All incredibly helpful guys. Last one for me, just Paul on the – or maybe for Luca, this would be on the quarter. Any one time items that hit the first quarter result, typically ex the legal costs, you'd probably be at a negative AFFO. So it was really encouraging to see the positive I guess maybe just a little insight on the drivers, any lease termination income, or just some later specialty crop revenue recognition that might've aided in the quarter?

We don't think – it's hard to always a little bit to answer that question, because as we've talked many times in the past. The way GAAP works for us is, it's not based on our industry. It's based on real estate more generally. But not – there's no really large items that come to mind. I believe though that the probably would have been a little shifting of fourth quarter crop share revenue into the first quarter, that was a little out of the ordinary and helped us a bit. But not, I mean, that's not the key driver, those thing that made the most differences that – we're a relatively low interest rate environment year-over-year. We've seen modest improvement in a sort of operating data of the company revenue costs, so on and so forth. And you're seeing that, but for the elevated legal spend, because we've essentially run through our insurance at this point. You're seeing what we'd expect to see as the farm economy turns back up.

Great. All good news. Thanks, Paul.

Thank you very much.

The next question is from Craig Kucera of B. Riley Securities. Please go ahead.

Good morning guys. In your 10-K you put out your expectations – hey guys. In your 10-K you put out your expectations around fixed rent and variable rent leases for the year. I think this year it was pretty flat with 2020 at about $11 million. But my question is with some of these commodities that you're so heavily invested in basically doubling from kind of their averages last year, how should we try to encapsulate what the impact of variable rent might be later this year? Is it 35% to 40% of the upside, or I guess just how should we think about that in a higher pricing environment?

Yes. This is – Craig, in many ways, a continuation of the question that David asked, so most of our variable rents are in the specialty crop area, so this really powerful price recovery in corn, soybeans and wheat isn't a huge driver of our variable rent. Now we do, particularly in the high, what we call the high plains region, you think of Eastern Colorado, Western Kansas, and Nebraska. We do have quite a bit of variable rent in that region. And we will see those variable rents certainly on irrigated farms improve for us substantially. On the dry land farms in that region of which many of our acres are dry land, it’s driven by – the prices look really good, but you have to have rainfall to get a good crop. And right now we have started to see in our areas of – in areas we own Farmland the weather patterns change and improvements in rainfall, which should lead us to a good crop result. But again, it’s mid-May asked me in mid-July and I can give you a better view on whether the crop will be – volumes will be strong. So there will be a modest bump in variable for us because of a row crop. But most of the variable side of our revenue stream is in that specialty crop and those commodities march to a completely different drummer than the row crops. So it doesn’t mean they’re bad, it’s just not the same things going on there as what’s going on in the crop area.

Okay. Thanks. I appreciate the color.

[Operator Instructions] The next question is from Buck Horne of Raymond James. Please go ahead.

Thanks. Good morning. My question is just curious about the acquisition and disposition environment among private market participants. And obviously the good news about the pricing and commodities is probably not gone unnoticed. I’m wondering if you’re seeing more competition coming up for bidding on acres that do come available for sale. Kind of what’s in the pipeline and are people starting to underwrite these higher levels of farmer profitability into their assumptions? Is it getting – is that bidding kind of getting out of hand or not?

Well, the Farmland markets and for this purpose of these comments, I think of it only as the real property agents. So, set California side for a minute as you look at our portfolio. They don’t all move in tandem. So let me kind of break it apart, what the very best quality land in the strongest corn and bean regions in the country like Illinois, where we are so highly invested. Those valuations have moved and moved swiftly over the last six months. I think they have a long way to go. Frankly, if you look at the increased revenue per acre and profit per acre, and you put a cap rate on that increased value that will be available to landlords, I’m not sure those prices are done moving yet. But they have already moved, frankly, thousands of dollars an acre. And what you see happen in this marketplace is two different things when land values appreciate or the land values stay the same for a long period of time. When they stay the same for a long period of time, you see volumes gradually fall off. Because what we all forget is that there’s a tiny percentage of Farmland that trades any given year. It’s only a handful – a couple percent, maybe 5% at the most of Farmland’s rolling over every year. Some people think it’s just right around 2%. If the owners of the Farmland today, believe the prices available in the market are not very good volume decreases, except for that volume that comes from a death in the family or a divorce or cruel financial distress. Conversely, when you see prices start to get strong, you see volumes increase and we have started to see volumes increase in the core of the Midwest like Illinois. And so you’ve got price increase and volume increase, which suggests to you that owners of Farmland, which I think you can assume are kind of the smart money in this space are saying, hey, that’s a really good price for my farm and they’re gradually selling a slightly elevated number of farms compared to what was in the marketplace two years ago, for example. We think that’s going to continue and we’ll see prices continue to go up in the Midwest, in some of the other regions or in the lower quality parcels of land in the Midwest. These price gains haven’t shown up yet. And so what you – you have to have a point of view about how far it may go and how strong it will go. You have to also have the long-term view that I expressed in the prepared remarks about this is really about global food demand and land scarcity. And you’re going to go out and make some investments, hopefully where you get near and medium-term appreciation right after you make those investments. But even if you don’t, the five, seven, 10 year appreciation will reward you handsomely for having made those investments. So this is what, we’re going to try to do it. We’re going to deploy capital. We’re going to try to do it in some cases off-balance sheet where we don’t call it dilution to existing shareholders as much as possible, and we’re going to do our best to catch the cycle right. But we don’t believe and I’ve done this now for 25 years. It’s not about the cycle. It’s about that power of that long-term trend. And it really is a long-term trend different than the other real estate asset classes. You cannot invest in this business sort of waiting for the big Farmland value drop. We had people back in 2014-2015 when the farm economy started to go into a more negative stance telling us, hey, hey, just wait, Farmland’s going to collapse 30%. And we told people and we done a conference call transcripts. No, it’s not. And in my lifetime, there’s only been one big drop in Farmland. It was a mid-1980s, and I was too young to take advantage of it. But that’s the only one. The other downturns led to flat Farmland pricing until you came back out of the downturn and then there’s a step function increase in value. And so the takeaway here is, we’ll try to get it right based on getting ahead of the curve when we can. But the real wave is that long-term appreciation story and we want to ride that as long as we can.

Thank you. That’s really thoughtful and detailed answer. I’m also curious as you’re talking to your tenants and other participants in the market, if they’re talking about labor shortages in the field or other issues around labor costs, or whether it’s about the shortage of trucking and whether it’s hauling costs. Are you hearing issues around in terms of estimating that profitability what the farmer’s cost equation is doing at the moment and how do you guys think about that?

Yes. So turning to – labor is just one element of cost. I’m going to break this answer into the – again, the two broad crop types, row crop and specialty crop because it’s a little bit different answer for both. So farmers will see gradually increased cost structure as we see prices increase, the seed company, the chemical company, the farm machinery dealership, look, they’ve all done what we’ve done for the last five or six years, sort of hunker down and hold on. And they’re going to take a relative piece of that increased profitability. The ratios that everybody gets will probably stay roughly the same. If anyone has an advantage in that battle to get a slightly higher percentage of the additional revenue, we think the farmer owner us, the landlord is in the most powerful position because we have the scarcest resource. But, I think we’ll get our share of it and so will the seed and chemical company and so will John Deere and so on and so forth. So the farmers are going to see costs go up, but his share of that, his profitability is also going to be significantly enhanced. As far as labor specifically, in the specialty crop area, we have heard some sort of difficulty in getting picking crews for citrus. That’s partly COVID-related and moving substantial amounts of workers across the Southern border in a legal way in the COVID era is difficult. So there’s a little bit of constraint there. Every year there’s slightly more mechanization in that picking process than there was before. We haven’t heard at least from any of our tenants that they couldn’t get the job done. We’ve just heard kind of expressions of frustration, but not real crisis. On the row crop side of things, luckily that is a very mechanized industry already. In rural America, in the Midwest and the Plains and the Southeast and the Delta, finding labor, particularly young labor is really hard. Those towns are shrinking, every farmer I know who has four kids as at least two of them who come out of college and stay in an urban area and don’t come home. And sometimes it’s all four don’t come home. And that’s a anecdotal example of a real statistic. So this is a growing problem. Again, mechanization in that industry has been pretty rapid. You actually touched Buck on one of the – ones where it hasn’t occurred. You haul the same amount of grain in a semi-truck today that you did 20 years ago. The weight you’re allowed to put in a truck hasn’t really changed. And so that is a bit of an issue that trucking today though, is largely being done by a lot of kind of retired farmers who have a trucking license. And it’s – you go look at trucks during harvest, and they’re all guys, frankly, my age or older driving those trucks in most cases. And they come in and they work really hard for a few months, and then they’re back to semi-retirement, so to speak. So we’re getting through that, but it’ll be a bit of a growing problem, I’m sure.

Got you. That’s very helpful. My last one, just real quick thought is just looking at the weather patterns. I guess, the Western region of the U.S. is already seeing pretty dry and record drought conditions for early in the year. Is that an issue to watch for the specialty crops looking ahead? Or how do you think about the start of the year with the water levels already pretty low on the West side of the country?

Well, again, you got to break it into different. You got to break it down to a certain granular level a little bit. So first, if it’s irrigated ground versus non-irrigated ground and the specialty crops are almost universally irrigated. The drought in a near-term sense doesn’t matter. You got irrigation. Where the drought matters is if you are setting into a long-term cycle five or 10 years or a permanent cycle, depending on your view on things like global warming of not having enough water that has long-term implications. So this is something we watch very closely. We try to be very careful about the quality and quantity of water we have on our properties. And in most cases in the specialty markets, we feel pretty good about it. The thing that scares me more is this long-term trend of declining water availability then the sort of near-term drought issue, because that’s where our values of our properties could be affected. That being said, turn this on its head just a minute. We’re not going to quit producing citrus or almonds or pistachios in the United States. If you are in the upper half of water availability, so to speak with your properties, you may actually be benefited in terms of Farmland valuation by the drought, because it takes the very bottom of the barrel and takes them out and they stop producing. So you’ll see a commodity price and valuations on Farmland that still produces those specialty crops get stronger. We think we’ve got our position in the right place that’s kind of where we’ll be is on the upper end of the beneficiary of a drought, so to speak, not on the negative end. And setting those comments aside, our hope is, nobody gets hurt. But we try to be in the higher quality and quantity of water when we can, therefore, benefiting from water restrictions on other farms. Turning to the row crop side. The drought today that you’re talking about, it’s pretty strong in most of the high plains it’s particularly strong in North and South Dakota in terms of a low winter snowfall and low rainfall so far this spring. Those regions on a nationwide basis are not really huge producers. There’s a lot acres up there, a lot of good farmers, but it’s a colder region with a shorter growing season and in an absolute volume of corn and soybeans for example, just not huge contributor. What really drives those key commodities are Illinois, Iowa, Indiana, Eastern Nebraska, Eastern Kansas, Missouri, so on and so forth. That region of the country is in pretty good shape, probably a little drier than normal. But nothing that’s at crisis level yet. But I – the predictions are that we’re going to have sort of an average crop in terms of yield per acre in most of the country, not in huge bumper crop, which is – the bumper crop would probably take prices back down. So frankly, Goldilocks not too hot, not too cold outcome and volume of grains is probably where you want to end up from the standpoint of continuing to move Farmland values higher. We think that’ll be the best result for us. And that seems to be what we’re getting set up for.

Thank you so much. Great color. I appreciate that.

Good. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Paul Pittman for closing remarks.

Great. Thank you. Thank you for everyone for joining our call and more importantly, thank you for supporting our company. We will continue to try to move our business forward with growth and further profitability, and look forward to talking to you again at the end of the next quarter. Thank you.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.