A Sweet Spot for Sower Farmland: Louisiana Sugarcane
By Ethan Branscum, Senior Director of Portfolio Acquisitions, Sower Farmland | October 2024
Sower Farmland made its first acquisition in Louisiana sugarcane farmland in Q3 2023 and has since continued to expand the portfolio. In a recent Sower Report, we highlighted the Clubb Farm acquisition that was made in Q2 2024 and the many great merits of that farm. For this report, we want to highlight the Kent Farm, which is the original sugarcane farm purchased by Sower Farmland. In Q3 2024, Sower Farmland entered into a purchase agreement to acquire a bolt-on tract of sugarcane farmland that is adjacent to the Kent Farm; planned lclosing on this bolt-on farm is the 4th quarter of 2024. In addition to highlighting the Kent Farm, we are going briefly examine the U.S. sugarcane industry and why we are bullish on this commodity.
The Kent Farm – Relationships Are Everything
The Kent Farm is a 1,605-acre farm located in Pointe Coupee Parish, LA, just NW of Baton Rouge. The fam has 1,560 tillable acres that are almost all in sugarcane production. The farm is furrow irrigated by an excellent groundwater aquifer in the event that annual rainfall is not sufficient enough for sugarcane growth. The farm consists of highly productive silt loam, sandy loam and silty clay soils which are idea for sugarcane production.
This farm was purchased in a sales-leaseback transaction with the previous owner, Mr. Joey Kent, who has remained as the current tenant on the farm. Mr. Kent is a key strategic partner to Sower Farmland. The Kent Farm is a great testament to our firm’s local market relationships and the value that brings to our investors seeking to acquire high quality farmland across the U.S. Even after this transaction, Mr. Kent has continued to support Sower through additional deal flow and tenant relationships.
U.S. Sugar Industry
Sugarcane is primarily produced in Louisiana and Florida, however, domestic sugar is also produced from sugar beets which are primarily grown in the upper Midwest states. A brief look into the U.S. sugar industry is helpful in understanding our bullish approach to this commodity. Since sugar is only produced in a handful of markets, the demand for farmland in these markets is highly competitive. For investors looking for high yield and future asset appreciation, markets like these are optimal.
U.S. sugar prices and production are heavily influenced by the Sugar Program. This government program includes tariff-rate quotas (TRQs) on sugar imports, maintaining stable prices for domestic producers. This policy provides a safety net to support U.S. sugar producers by limiting excessive imports and stabilizing market conditions. Currently, the stocks-to-use ratio (an indicator of market supply) is at 17.6%, the highest since 2012-2013. This has resulted in excellent sugarcane prices for producers in 2024 which has benefited Sower Farmland investors through our flex lease arrangement.
Sower Flex Leases
Understanding these market conditions for sugarcane, Sower Farmland has intentionally crafted its lease arrangements with local farmers to mitigate downside risks while maintaining upside profit opportunities at the same time. We accomplished this through a flex lease structure with Mr. Kent. We establish a base cash rental rate on all tillable acres, however, if sugar prices for the crop year exceed a certain threshold, Sower receives an additional bonus rent on top of the base cash rent. This structure ensures a minimum income level for the asset, but if sugar prices are doing good, Sower gets to benefit in that upside as well. We anticipate 2024 and 2025 to be strong year’s for bonus rent opportunities for Sower’s sugarcane assets.
Summary
The Kent Farm is a great example of the value of local relationships. This highly productive sugarcane farm is one we are very proud of, and the partnership with our local farming tenant is equally rewarding. We are continually bullish on the U.S. sugarcane markets for a variety of reasons mentioned above. Sower Farmland has worked hard to discover value to our investors in the sugarcane market, and we look forward to continuing that in the near future.