How a trade row may split the fortunes of two US farm companies

The threat of steep tariffs on soybeans, wheat and corn from an escalating US-China trade dispute may decide the survivor among the two largest real estate funds in the hard-hit US farm sector.

Farmland Partners Inc, a $251 million market cap real estate investment trust that owns more than 166,000 acres of farmland, appears to be more vulnerable to the effects of a trade war than its largest publicly traded competitor, $186 million market cap Gladstone Land Corp.

That is because while Gladstone Land has focused primarily on so-called permanent crops such as oranges and almonds that grow on trees and vines, Farmland Partners has roughly 60 percent of its portfolio in row crops such as soy that China included in its April 4 list of retaliatory tariffs against the United States.

Roughly 35 million tonnes of US soybeans imported each year by China will now face an additional 25 percent import tax. Soy futures Sv1 plummeted 5 percent on April 4, the day the tariffs were announced.

With its concentration on farmland that produces soy, Farmland Partners is “the most likely to be in the crosshairs of China” and may have more difficulty passing on rent increases to its farmer tenants than Gladstone Land, putting its dividend at risk, said Robert Stevenson, an analyst at Janney who covers both companies.

Paul Pittman, the chief executive of Farmland Partners and one of its largest investors, told Reuters in an interview he thinks his company's stock is undervalued and that chief competitor Gladstone Land is spreading misinformation about the challenges facing row crops.

“Our company is misunderstood,” Pittman said.

When asked for comment on Pittman's allegations, David Gladstone, Gladstone Land's chief executive, told Reuters: “We have no idea how the tariffs will impact them.”

His own company, meanwhile, focuses mostly on perishable berries and vegetables that are not shipped to Asia and organic almonds that have little export sales, Gladstone added in a statement.

Higher trading costs would only add to the challenges facing US farmers. Before the tariffs were announced, the United States Department of Agriculture estimated in February that inflation-adjusted net farm income would decrease 6.8 percent, or $6.7 billion, this year, to its lowest level since 2009. Those declines would mark the fourth-straight annual loss for the sector, which has been undercut by rising interest rates and high land prices.