Investing in Farmland: Considering Schober's Article

On Thursday, Seeking Alpha ran a post called "Protect Your Money With Farmland" written by T. Marc Schober. The author has had four posts run on Seeking Alpha, all about farmland. I've mentioned investing in farmland several times, including this post with quite a few stocks that may be related (to the extent you care, you would need to research these names from scratch). I also wrote about this for Greenfaucet a while back as well. I found this post that has Jimmy Rogers' thoughts on the matter and Marc Faber is a fan as well, if you care to search for anything from him on this.

The Schober article mentioned above is short on detail. I left a comment asking if any of the publicly traded companies in the space can serve as proxies (something I am trying to sort out). I also asked about whether the economics (my meaning was the subsidies) interfere with the theme. Every time I mention these, one reader brings up the difficulty along these lines, which reminds me that Schober mentions some eye-poppingly good return numbers but doesn't provide attribution.

The motivation behind this quest is the belief that the old ideas about asset allocation will continue to need to evolve to include other things. In the last few years, we have collectively come to learn much more about commodities than we did before and many more of us are using exchange traded products to capture the space. Ditto in much smaller numbers with absolute return vehicles and maybe currencies, too.

These tools have hopefully helped people fare better than the S&P 500's decade-to-date 31% decline (SPX closed at 1469 on December 31, 1999). I think more people will get on board with this, but I believe the concept will have to continue to evolve into more choices while walking the fine line of going from hedging an equity portfolio with small exposure to diversifiers to owning a bunch of diversifiers hedged with a little equity exposure.

Remember: the market action from this decade, as bad as it has been, is not radically different from what has happened a couple of times before and going forward, (foreign?) equities are likely to be the best way to go until the 2030s or 2040s, when we have another lousy decade.

I have viewed farmland stocks as potentially replacing REITs as diversifiers. Despite a reader accusing me of something called recency(sp?) bias the last time I mentioned this, I have given up on them as being diversifiers. I've been interested in farmland stocks for almost a year and half and still have not drawn a final conclusion, but that is just part of the process.

There are non-public vehicles for buying into farmland and I suspect there will be exchange listed vehicles at some point if the stocks out there turn out to not be the way to go.

Comments

[A. Nony Mouse:]

any thoughts on stocks such as (alex), (alco) (cresy), or (blmc) as proxies for owning farmland?

Sep 06 06:33 PM

[david8ricardo:]

Sprott Resource Corp in Toronto (SCP) has an joint venture called One Earth Farms with the First Nations natives in Alberta/Saskatchewan Canada to harness farmland ... it is potentially a 1-million acre farm, and SCP is likely to spin it off public if it works out and there is investment demand

obront.wordpress.com/2.../

note that SCP operates like a public hedge fund with active buying/selling of businesses ... it currently has mostly cash (and some gold silver) on its balance sheet, some oil and potash investments, the manager has a great track record, and is currently trading under NAV. i own it

Sep 07 08:29 AM

[old fogey:]

When investing in "farmland" one is investing in the farmer rather than just the land. Farmland of the past had often been sold off for development.

Currently, (small) farmers are failing due to lack of finance. I have been a profitable "investor" 12 years, but my greatest satisfaction came from barely breaking even working a ten acre spread.

Careing for animals, and raising vegatables puts one in tune with the seasons.
Although demanding of great energy, so too then is the reward of health and accomplishment greater than money.

Sep 07 09:17 AM

[Billy Hawkf...:]

My recollection of the Great Depression is that there came a time when the AAA (in this case, Agricultural Adjustment Administration) dumped, corn, wheat and meat carcasses into the Mississippi River because prices had collapsed. Of course the farm economy did, too, and with it, the value of farm land which was pretty poor. The family of a similarly ancient friend in Colorado, whose grandfather homesteaded their land in the Nineteenth Century, was able to keep it even through ensuing Dust Bowl days because they had rights on a aquifer adjacent to the North Branch of the Platte River. My opinion is that farm land is a snare and a delusion like everything else you invest in if you are ignorant of the basics and trends.

Best wishes, Billy

PS -- I born and raised in South Florida while our residential, farm and grove lands went to hell in a handbasket. As the recent past shows, we don't need a depression to screw things up. bh

Sep 07 10:15 AM

[Pat Shuff:]

Also holding Sprott Resource Corp since Dec. '08.

Canadian farmland investment premise from Agcapita Partners LP:

www.farmlandinvestment...

Zero till farming allows credits to be claimed in both Alberta and Saskatchewan currently.

Vehicles for mining carbon credits, turning green into green?

hillandpartners.com/04...

www.smalldeadanimals.c...

How it works
According to Alberta regulations, carbon credits can be generated through various methods. One attracting the most attention is through “no till” practices in the agriculture industry.

“Basically, no-till means that instead of tilling their land, farmers would do direct seeding. This process removes carbon from the air and stores it in the soil,” explains Larry Ruud, Meyers Norris Penny’s director of intensive livestock.

Larry adds that most businesses generating carbon credits will want to use an aggregator or carbon credit trader to help market the credits. Aggregators pool the carbon credits from farmers and other sources, then market them to utilities and other major companies to offset their own emissions. Meyers Norris Penny held information seminars on the new industry in February 2008.

“Carbon credit trading is an emerging market. It rewards farmers and others for pursuing more carbon-neutral ways of doing business.”

Sep 07 12:03 PM

[Roger Nusbaum:]

I tried to mention ALEX on CNBC a couple of weeks ago but got diverted to talking about Fannie and Freddie. The company is interesting to me but there are many other parts too that are cyclical. interesting conglomerate is an easier conclusion for me to draw farmland proxy for now.

If i remember correctly CRESY is argentina? if I have that right then no thanks. don't know the other two.


On Sep 06 06:33 PM A. Nony Mouse wrote:

> any thoughts on stocks such as (alex), (alco) (cresy), or (blmc)
> as proxies for owning farmland?

Sep 07 08:08 PM

[waitaminit:]

AgCapita is only available for investment by Canadian citizens according to an e-mail I got back from them. They promised to let me know when things change. I don't know what would make that happen.

Sep 07 11:01 PM

[Mad Hedge F...:]

djo. Fortune magazine ran an excellent article about the flood of institutional money pouring into agricultural land, a sector I have been harping on for some time (see earlier piece ).The amount of arable land per person has fallen precipitously since1960, from 1.1 acres to 0.6 acres, and that could halve again by 2050.Water is about to become even more scarce than land. Productivity gains from new seed types are hitting a wall. Rising incomes in emerging markets is producing more meat eaters, another huge call on grain and water supplies. To produce one pound of beef, you need 16 pounds of grain and over 2,000 gallons of water. China, especially, is in a pickle because it has 20% of the world’s population, but only 7% of the arable land, and it has committed $5 billion to agricultural land in Africa. Similarly, South Korea has leased half the arable land in Madagascar to insure their food supplies. George Soros has snatched up 650,000 acres of land in Argentina and Brazil on the cheap, an area half the size of Rhode Island, and has become the largest shareholder in Potash (POT). Even hedge funds are getting into the game, quietly building portfolios of farms in the Midwest and the South. Time to take another look at Agrium (AGU), Monsanto (MON), Wheat (WZ09) and the ag ETF (MOO). Email me at madhedgefundtrader@yah... if you need to know how to execute on any of these.

Sep 08 10:51 AM