Weather’s Impact on Investing in US Agriculture: Navigating the New Normal

By Craig Wichner, Farmland LP (June 11, 2024)

This article was written for and originally published by the GreenMoney Journal (May 2024 issue). See the original here.

Napa cabernet. Florida oranges. Georgia peaches. Washington apples. Why are crops so associated with places? As an investor, it’s crucial to recognize the impact that weather and climate have on agriculture. Weather patterns dictate the success or failure of crops, influence land management decisions, and ultimately shape the financial landscape for agricultural investments. Understanding this dynamic interaction, and their changes, is critical to not only the farmer working the land, but those investing in it.

Photo credit: National Geographic courtesy of Farmland LP

Sunshine, Dirt, and Water

To fully understand the evolving role of weather in farming, we look to its fundamental components: sunshine, dirt, and water. These elements form the foundation of agricultural productivity and are intrinsically linked to weather patterns.

Sunshine delineates where crops thrive based on temperature thresholds. As the climate continues to evolve, the impact of altered sunshine patterns becomes increasingly evident. The changing variation in temperature is reshaping growing regions and exerting significant pressure on agricultural practices. As an example, states like Illinois may transition to climates akin to present-day Dallas and Houston, necessitating shifts in crop selection.

Rising temperatures alter traditional growing seasons, leading to early springs and late autumns that disrupt crop planting and harvesting schedules. Additionally, heat stress during critical growth stages affects crop yields, posing challenges to agricultural planning and management. These changing weather patterns necessitate proactive adaptation strategies to mitigate the risks and ensure the long-term sustainability of agricultural production.

Source: UN Intergovernmental Panel on Climate Change (IPCC), Sixth Assessment Report

While weather fluctuates, soil remains the foundational constant in the optimal agricultural equation. The composition and health of soil dictates its suitability for agriculture while soil itself mitigates and adapts to the impacts of climate change. Organic and regenerative farming practices are particularly effective in increasing soil carbon levels and fostering soil health. These practices prioritize the use of organic inputs, minimal tillage, cover cropping, and diverse crop rotations, all of which promote the accumulation of organic matter in the soil. By enhancing soil carbon stocks, organic and regenerative practices not only bolster soil fertility and structure but also enhance the soil’s capacity to withstand and recover from the impacts of a changing climate.

Last and certainly not least, water is significant in shaping the success and sustainability of farming practices. Its availability and distribution determine the viability of crop production, making it a critical factor for agricultural resilience. The impacts of an evolving climate on water dynamics introduce both opportunities and challenges for agricultural systems. A changing climate can exacerbate water-related extremes, amplifying the frequency and intensity of events such as floods and droughts. These extreme weather events disrupt traditional farming practices, causing significant damage to crops, infrastructure, and livelihoods.

Further, altered precipitation patterns further complicate crop management, posing additional challenges for farmers. Regions accustomed to predictable rainfall patterns may experience shifts in the timing, intensity, and duration of precipitation events, disrupting planting schedules, irrigation practices, and harvest timings. For instance, the Midwest, known for its vital role in corn production, has grappled with the challenge of drying corn amidst late-season humidity, exacerbated by altered precipitation patterns associated with climate change. In response to these challenges, farmers are increasingly adopting adaptive strategies and technologies to enhance water efficiency and resilience.

Alila Napa Valley in Northern California Wine Country courtesy of Farmland LP

Impact of Climate and Weather on Individual Crops

Specific crops offer compelling examples of weather’s impact on agriculture. With warming climates reshaping growing environments, the viability of wine grape cultivation, for example, is under threat. In renowned regions like Napa Valley, the changing climate necessitates a shift towards alternative grape varietals capable of thriving in longer, hotter summers. This trend not only reflects the adaptability of agriculture but also underscores the imperative for proactive measures to safeguard crop production amidst changing climates.

Florida’s orange industry represents the dangerous outcomes of climate-related problems. The warming winters no longer lowered minimum temperatures to below the freezing point, allowing a tropical pest to survive and spread citrus greening disease, leading to a dramatic reduction in orange production. Florida orange production fell from 250 million boxes in 2004 to an 86-year low of 16 million boxes in 20231.

This 94 percent decline in 20 years reflects the vulnerability of crops to environmental stressors. With Florida historically contributing over 80 percent of the annual U.S. orange crop, this downturn has significant repercussions for the national citrus market. The state’s struggle with citrus greening, compounded by the destructive impacts of severe weather events, has further intensified the crisis.

US Orange Production, Source: US Dept of Agriculture

Changing weather patterns even impact ‘king corn’, grown on ~50% of all U.S. farmland. As temperatures rise, corn planting is occurring earlier. The warming temperature exacerbates the proliferation of pests and weeds, leading to increased competition for resources and potential yield losses. Furthermore, rising temperatures are facilitating the northward expansion of pests such as stink bugs, corn earworm, and Japanese beetles, posing additional challenges to corn growers. These combined factors underscore the urgent need for adaptive measures and resilient farming practices to mitigate the adverse effects of changing weather on corn production.

Adapting to Weather and Climate Change 

Amidst these challenges, strategically sound investments in farmland offer avenues for resilience and growth in the agricultural sector. Farmland assets are historically very reliable long-term investments with an 80-year track record of delivering positive returns with low volatility.

High-quality farmland, coupled with secure water rights, becomes increasingly valuable in the face of shifting crop geographies and the loss of two-million acres of farmland every year. Climate-smart investments in high-value crops such as grapes, citrus fruits, avocados, olives, and tropical varieties offer promising prospects for returns, if climate changes are planned for.

Riverwood Farm, located in Oregon’s Willamette Valley; Farmland LP Fund III’s inaugural farm

Innovation plays a pivotal role in enhancing agricultural productivity and sustainability. Initiatives such as organic and high-carbon agriculture promote environmental stewardship, while mechanization of harvest, weeding, and cultivation processes improve efficiency and reduce labor costs. Emerging technologies like drones and UAVs enable precise monitoring and management of crops, while smart irrigation systems optimize water usage, mitigating the impact of water scarcity. These investment opportunities not only foster resilience in the face of changing weather patterns but also contribute to the sustainable growth of the agricultural sector.

At Farmland LP, our investment philosophy is deeply rooted in investing and understanding the challenges posed by climate change. With a portfolio of over 16,000 acres of farmland and $300 million in assets under management, we invest in regions that withstand or even benefit from these changes. Our emphasis on healthy soils, crop suitability, and water rights reflect our proactive approach. Through organic and regenerative farming practices, we can provide effective environmental stewardship while achieving robust financial returns.

Ultimately, weather’s impact on U.S. agriculture shapes investment and environmental imperatives alike. With strategic foresight, investors can harness the opportunities inherent in climate-resilient agriculture, ensuring both financial success and ecological vitality for generations to come.  

Article by Craig Wichner, who founded Farmland LP in 2009 and is responsible for day-to-day management, business strategy and all investment activity. Craig has helped build numerous companies over the past 30 years as an experienced technology and real estate investor. His dedication to verifiable, data-driven sustainable practices has earned Farmland LP recognition as a sustainability leader, achieving the highest rating among 10,000+ global corporations by HIP Investor in 2021. Craig has a B.S. in Biochemistry and Molecular Biology, with a minor in Economics, from the University of California, San Diego.

Footnote:

[1] Braun, Karen. “US Orange Crop Falls to 86-Year Low, OJ Futures Hit New Record | Reuters.” Reuters, 12 Apr. 2023, www.reuters.com/markets/commodities/us-orange-crop-falls-86-year-low-oj-futures-hit-new-record-2023-04-12/