Lessons From the Delta, Part 2: Land Values, Capital Markets, and the Business of Rice

Audio Transcription:

[00:00:00] Inside the Delta Land Market
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Aaron Shew: At Zillow, they like Zestimate. You can look at the Zillow’s estimated value of a residential property, even some commercial properties and people accept it as like, right. There is nothing like that in ag land. Because county ag land transactions in given year, it’s probably less than 20, maybe even down below 10. And you can have 5% or 10% fluctuation over year. So automated models like Zestimate aren’t gonna work in ag.

Chad Fiechter: Welcome to the Purdue Commercial Ag Cast. I’m Chad Fiechter.

This week we’re continuing our Lessons from the Delta series – conversations that Todd and I had recorded last summer while traveling through the Mississippi Delta in Arkansas.

If you didn’t catch episode one, we laid the groundwork for what makes this region different – from the scale of rice production to the role of irrigation and water management in shaping the entire production system.

In this episode, we dig deeper into one of those conversations, this time it’s with Aaron Shew, chief Technology Officer of Acres. We discuss the economics more: land values, crop optionality, capital intensity, and how risk is managed in a region where irrigation is a must.

You’ll hear a lot of this recorded in real time – in the truck, in the field – as we try to understand how production systems evolve, when the constraints are different than what most Midwestern corn and soybean farmers are used to.

Our goal here isn’t to compare regions. It’s to ask better questions and to think more clearly about how capital, water, and management decisions shape profitability.

This is episode two, our conversation with Aaron Shew.

Aaron, can you introduce yourself and tell us a little bit about yourself?

Aaron Shew: Absolutely. I live in Fayetteville, Arkansas. I’ve been in Arkansas for the last 13 years. So basically, and adopted Arkansan. I currently am the head product and data, at a company called Acres. You can check it out at acres dot com. We’re a software business focused on the land industry. Exclusively prebuilt environment real estate, focus pretty heavily on the ag industry, ag recreational land, ranch land, is bread and butter. So have both a web app a, a mobile app that serves clients in that space.

Todd Kuethe: Acres is related to the investigative work that Acre Trader was doing and systematically be able to evaluate purchase decisions based on available data. But a lot of the data that you have and work with is already publicly available or big data sets, but they didn’t play nicely together. Plus then some additional value added things that are not publicly available that you’ve acquired since.

Aaron Shew: Yeah. Acre Trader has been around since 2018 roughly. So I, I was a professor of agricultural economics at University of Arkansas at the time, this would’ve been about four years ago, when a good friend of mine, Ben Maddox at Anchor Trader, now is Chief Strategy Officer, at Acres, introduced me to the company and said, Hey, we’re, we’re contemplating building out some mapping software to help support due diligence farmland. So came on in a part-time consulting role and started building the data team for Acres. So that point in time, it was barely more than, than a spreadsheet, basically just a spreadsheet of the data sets they wanted and how they wanted to use them for diligence on farming. So now, we’re fast three and a half years, I was there about six months part-time, just fell in love with the business and the concept, both, both sides the business, Acre Trader business and the Acres business. We built out this, this app was really initially meant for internal due diligence, but quickly we like we’ve consolidated, you know, or five other uh, softwares being used for different things. So let’s see if, if we can go to market with this. We actually broke out separate business. So we are two businesses now under same umbrella, Acre Trader and Acres.

[00:04:25] Data, Due Diligence, and Capital Flow
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Chad Fiechter: What struck us pretty quickly in this conversation wasn’t just the software side of what Aaron’s building, it was what his work reveals about land markets in agriculture.

And the delta especially, land values, lending relationships, and transaction data play a much bigger role in how capital moves than I originally had thought.

So we asked Aaron to walk us through how agricultural land actually gets valued and why it’s so complex.

 

Todd Kuethe: And who are the clients or users of Acres?

Aaron Shew: So the, the enterprise side of things, which highest value part of the business, is gonna be, I’d broadly say anybody that is buying, selling, investing in, or lending in ag. So that covers a broad swath of people. Lots and lots of ag brokers, your large agricultural lenders, which includes both conventional banks, well as the farm credit system. And then a number of similar firms to Acre Trader. So other investment capital firms are managing farmland assets are our clients, so that’s at enterprise We then have some lower tiers. So we’re primarily a B2B software, but we do have a mobile app and, and a consumer web application called Plus. And so folks maybe broadly in, in the ag space, but they’re not making money buying selling land. But they ownership data and they want to see soils, vegetation index, elevation, a bunch of other data on a specific property. can get access a lot of that data on our plus version of the software, which is like eight bucks a month.

So there, there’s a couple core objectives our user gonna have. So the very first focus of ours was how do we value land better, better, right? So if you go look at Zillow, they like Zestimate. You can go look at the, the Zillow’s estimated value of a residential property, even some commercial properties and people accept it as right. There is nothing like that in ag land and there likely won’t be for a very, very long time, if ever. Because the data is so hard to combine. If you think about the of ag land transactions at a county level in given year, it’s just that many. It’s probably less than 20 in most counties, uh, maybe even down below 10. And the market for land, of course, moves quickly. So it might, I say it doesn’t move that quickly relative to the stock market like over quickly but you can have 5% fluctuation or 10% fluctuation over year, in particularly the three to five years, post COVID. And the high interest rate environments has changed things. So automated models like Zestimate aren’t gonna work in ag. And so our users coming to our platform to get the best agricultural land sales data you can get nationally. So they’re gonna come in our tool and they’re gonna go find target property. So they come into the Delta, in Arkansas, they find that that property, you got all the owner data from the the county assessor’s office and you can go check out our sole land and you’re gonna get a mix of, of sales data there. So you’re gonna get courthouse sales. You can find curated sales that our team manually finds. We monitor hundreds and hundreds of websites every day and every week to put in not just hey, sale price buyer, seller, but the actual sales collateral. So think farm pictures and and the listings information that you would for that farm. It’s attached are curated sales. Then users put in their own data in a contributory database, which means, and we don’t charge for that. It’s just, Hey, if you wanna share, you’re able to collect 10 sales a year in your own business. If you put those in the system and make them contributory, you can see everybody else that contributes. And so those are now on the tens of thousands of like of highly curated data by professionals that value land.

So would number one thing these clients came to do is, okay, I’ve a property I want, I need to value it. So I’m gonna go grab my comparable sales, get a quick estimate price per acre or they list for. They may generate reports embedded share publicly market a property if broker, pDFs diligence within a team. So that, that was the one reason.

And then what seen evolve is that folks are using it a lot more for lead generation now. So it’s not so much, Hey, I’m gonna go value this property. There’s there’s plenty of that still. Still the core function. The other thing is, we also have mortgage data in the tool. So they can go search and filter farm mortgages, find the ones that are maturing and reach out to those farmers. So they can build a whole lead generation pipeline within Acres and manage that as a team. Across analysts or loan officers. So that’s another core function would be lead generation and land management.

[00:09:42] From Academia to AgTech
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Todd Kuethe: So our time together, traveling to Delta, you seem to just bring up a random interesting that you did prior to what you’re doing now. Can you tell us briefly your backstory, your path to where you are?

Aaron Shew: I’ve had a rather, uh, varied career path you could say. We can go way back to, you graduated high school in Middle Tennessee and tried the college path a semester, uh, turned out I liked bull riding and drinking beer more than I liked school. I dropped out of school and threw a somewhat winding path ended up in Thailand for a year. So I, was, grew up working on hay farms in Middle Tennessee, and so had the ag background. Anyway, I I always wanted kind on edge of things and I had this opportunity to go to Thailand for a year. Uh, worked with this demonstration farm. Ended up back school. Studied abroad numerous times. I spent year in India. I spent another six, eight months in, in the Middle East, a a couple of different places, Morocco in particular. And then, post-graduation with undergrad, I married. And my wife and I moved to first Afghanistan to open a soybean mill. And then after that got launched and off the ground we we moved to Iraq naturally to start another soybean mill.

Starting a new business in Iraq in particular just a massive learning experience. We worked with about 10 farmers to grow a few hundred acres of soybeans. Some things worked, some things didn’t. Business apart, and that’s when I decided that I should move to Arkansas and go grad school. So then ended here, went grad school. So focus on GIS, geographical information systems, or web sensing. And travel in the world is always interesting. Photography, building maps.

I took took a a long term postdoc with, USDA ag service. And then, a pretty unique position came up at Arkansas State University in Jonesborough. It’s just one big college of the ag. And you’re with small scientists, plant scientists, but they an endowed chair focused on agribusiness and innovation in the Delta. And I’m not even remotely qualified for an endowed chair, but studied rice production and spent a lot of time doing research and some extension oriented working in Delta. So I was like, I’m gonna throw my name in the hat, you know. And, uh, and, I pretty lucky. So took that position and was there for about three years. But U of A pulled back to, Fayetteville after three years Jonesboro, um, I an offer come back to the U of A, to be the associate director the the Center for Spatial technologies, GIS sensing, uh, in an an ag econ faculty member. So that right to where I at before I jumped to Acre Trader and Acres.

Chad Fiechter: Okay, so the. All that background it comes lot of technical skills and experience. When I think software companies and what happens on a day-to-day basis in a software company, I, I have absolutely no idea.

Aaron Shew: My job is getting on the phone with clients or potential clients. What works, what doesn’t work? What biggest points? What data sets do we not have that we should have, and how do you wanna interact with it? So try to those questions to define, Hey, what should we build into this software and what should we not, what should we, there’s a lot of art rather than science figuring out which features are most important to invest as a whole engineering team.

Todd Kuethe: I would assume also some of the people you’re working with were interested in technology and then they’ve found themselves working in the ag space and learning about agriculture. What’s your breakdown that you’ve observed in your firm or other firms you’ve interacted with in terms of how many of ’em are were getting people interested in our problems versus we’re trying to learn about these techniques from our problems first?

Aaron Shew: We spend most of our time again, just talking to those clients and condensing their problems into solutions that we can deliver through Acres. So very little internal knowledge is, is required at this point because we’re spending a very sequenced and intense amount of time with our clients.

[00:14:06] How Rice Farmers Actually Get Paid
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Chad Fiechter: And that land discussion matters because in the Delta production systems are deeply tied to land characteristics, soils, water access, levee systems, and those factors directly influence what crops get planted and how they get paid for. Specifically what we were interested in was how rice farmers got paid. It’s very different from corn and soybeans. It’s important to understand that rice isn’t sold the same way as we in the Midwest sell grain. You’re not just paid on bushels harvested. There’s another layer to it.

Todd Kuethe: So yeah, so we harvest the rice.

Aaron Shew: Mm-hmm.

Todd Kuethe: Do you to dry it?

Aaron Shew: Mm, it comes out it’s, it’s similar to, um, to grains in terms of, you know, wait till harvest moisture gets to a certain point. You harvest it. It’s probably similar probably wheat. Similar grass variety, grass crop. What very interesting though about rice that’s very different from corn and soybeans that you’re paid on raw yields. You harvest your rice and you generally, the typical thing folks in Arkansas is take it to a large rice cooperative, like Rice Mill or Windstream. There’s, there’s a number of of co-ops out there. It goes through the mill and get head rice yield, milling rice yield,

Chad Fiechter: Head rice?

Aaron Shew: Head Rice.

Chad Fiechter: Head rice yield.

Aaron Shew: HRY. Farmers get paid based on their percentage. Without getting too, too crazy with the math, you can expect you get, if 55% head rice yields. That’s full kernel unbroken rice. Milling rice yields be that 55% plus another, say 10% of broken rice which it comes at a discounted rate.

Todd Kuethe: Okay.

Aaron Shew: And so you’re paid a certain price for your brokens at a certain price for your, your head rice yield, full kernels, and that shakes out, multiplied by the raw counterweights harvested what actually earn.

[00:16:11] Risk Looks Different in the Delta
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Chad Fiechter: The more we listened, the clearer it became. The delta agriculture isn’t just a different crop mix, it’s a different capital structure.

Land values, irrigation, investment, milling risk, they all stack together in ways that change how risk is managed. That’s part two of our lessons from the Delta series. Next week, we’re gonna continue the conversation with Colson Tester, digging further into how irrigation is managed on the ground, what automation looks like in practice, and how some of these capital decisions compare to what Midwestern grain farmers are facing today.

If you’re finding value in this series, make sure to subscribe to the Purdue Commercial AgCast so you don’t miss what we’re doing next. We’ll continue this Delta series over the next several weeks alongside our regular Ag Economy Barometer insights and implication episodes.

And if you wanna see some of what we’re talking about, the fields, the levies, the water management, we’re sharing short video clips from our Arkansas trip over on our YouTube channel.

Those visuals may help really bring these conversations to life. If this episode sparked a thought for you, consider sharing it with a friend or another producer who might benefit from this discussion. Thanks for listening, and we’ll see you next time.