Investors Interested in Farmland Again

Investors are showing interest in global farmland again. Besides individual investments in US farmland, foreign farmland has taken the spotlight. Areas like Canada, Africa, and Australia are becoming targets for farmland investors.

In 2008, while food prices soared to all time highs, farmland values increased by double digits across the US and globally. In the second half of 2008, food prices fell and so did farmland values. The difference between farmland and other investments is that farmland was able to fare the economic storm without too much lost value.

According to the Wall Street Journal, the fundamentals of farmland as an investment are improving due to limited supply, water scarcity, increasing food demand, and food security concerns. These factors are leading analysts to anticipate recovery faster in some areas than others.

Andrew Shirley, head of rural property research at U.K.-based Knight Frank, said this about farmland prices: "I do not expect farmland prices to increase at the same double-digit rate that we saw in the first two quarters of 2008, but the recovery has started earlier than some people expected and average values should steadily climb back compared to other investment and property sectors, farmland values on average have remained relatively unscathed by the economic downturn."

Despite the global recession, land prices are growing in many areas, including in Saskatchewan, Canada. Saskatchewan farmland prices are up 15% year-over-year. Prices have recently grown partially because Canadian citizens from outside of the province can now own Saskatchewan farmland.

The Wall Street Journal noted that agricultural funds are the fastest way to invest. It is very hard for an individual investor to buy farmland because of the amount of capital needed, not to mention the amount of research necessary to make an knowledgeable purchase. Also, like we have been saying as well, farmland is a great hedge against inflation and a good investment during economic adversity.

Global Farmland

Globally, farmland values have acted erratic in some areas. As we spoke about above, Canada is experiencing large increases of values along with parts of Australia. On the other hand, Ukraine farmland, which interested investors in the past, has dropped 75% in value because of speculative investments. Also, South America is experiencing some of the same situations.

US Farmland

The USDA just announced that US farmland has decreased in value for the first time in more than 20 years, though this is not necessarily a bad statistic. US farmland is obviously weathering this economic storm better than many other countries, and with its extraordinary history of consistent gains, US farmland is poised to increase once again. This leaves investors a limited window to acquire land at lower prices.

Farmland is a different kind of investment as it not only provides appreciation, but pays you to hold it.


Disclosure: No positions

Comments

[Mad Hedge F...:]

mns Fortune magazine ran an excellent article about the flood of institutional money pouring into agricultural land, a sector I havebeen harping on for some time (see earlier piece).The amount of arable land per person has fallen precipitouslysince1960, from 1.1 acres to 0.6 acres, and that could halve again by2050.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 16pounds of grain and over 2,000 gallons of water. China, especially, isin 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 totake 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.

Nov 03 01:27 PM

[somecatchyp...:]

Farmland is probably a better inflation hedge than gold.

Exponential population growth combined with exponential growth in money supply equals more mouths to feed and higher prices for farmland.

Farmland has intrinsic value and fixed supply. I'll take my chances in this space, rather than participate in the manipulated precious metals market.

Nov 03 02:21 PM

[yellowhoard:]

Farmland is gold with yield.

Check out Agrifirma and Agcapita.

Nov 03 02:38 PM

[Mayascribe:]

How about farmland in western PA over the Marcellus shale?

To that purpose:

www.philly.com/philly/...

Nov 03 02:46 PM

[Albertarocks:]

"amber waves of grain"

Could be golden waves of grain soon..

Nov 03 03:10 PM

[concrete guy:]

Here in central Illinois we have the best combination of soil and climate (no need for irrigation) in the world. After the run-up in commodity prices last year we saw Class A farmland bringing on average $6.5 to $7.5K per acre. We also saw record farm profitability in 2008.

In 2009 farm rents and input costs (fertilizer, seed, etc.) skyrocketed. It will take $4.00 bushel corn and $8.00 bushel beans just to break even this harvest season. Unless commodity prices meet or exceed those levels, farm rents and land prices will almost certainly start to fall back. Thus far in 2009 Class A land has held it's value, but Class B and C land has fallen 10% to 15%.

Nov 03 04:26 PM

[somecatchyp...:]

yellowhoard -

I’d love to buy into Agcapita, but since I’m not an “accredited investor,” this is not an option.

Recently bought SCP (Sprott Resource Corp on the TSE). One of the major holdings is farmland in Saskatchewan. Looking at this as a buy it and forget it type of investment.

Disclosure: This is a shameless pump. Not that this security needs any pumping.

In case anyone who might be reading is not familiar with Eric Sprott, I suggest visiting the link posted below. Sprott, IMO, is a very astute guy. The recent “markets at a glance” document really lays it one the line.

www.sprott.com/

Nov 03 04:28 PM

[concrete guy:]

RE: Global farmland....a common misconception is that "God only made one Iowa" (ie all land suitable for farming is being cultivated). At a price point of about $7.00 per bushel corn it becomes economic to start farming huge swaths of South Africa. There is a lot more land out there that could be farmed when the economics are right.

Nov 03 04:40 PM

[Pat Shuff:]

Also holding Sprott Resources which is doing some innovative things. Slight correction to the above post,
the First Nation farmland is leased not owned. Twenty
percent of the balance sheet is silver/gold bullion in
the vault of Bank of Nova Scotia.

Nov 03 05:26 PM

[Windsun33:]

I think one reason for the increase in farmland in the past was the loss of arable land due to land developers buying up huge lots of it. That was especially common in California, Arizona, and parts of a few other states. Arizona alone lost hundreds of thousands of acres of Citrus and cotton fields. In some cases also, water shortages were (and still are) a problem in some areas - so areas with plentiful water and/or (more or less) predictable rain are probably much more valuable now.

Now that the housing bubble has collapsed, it is back to where the land is more valuable to grow food than ticky-tacky houses. For now.

Nov 03 10:54 PM

[a5fung:]

I agree with the above posters, farmland is a good idea but it''s hard to invest in for the (small) individual investors.

I'm also thinking of Sprott Resources, but dislike the 2/20 commission model they use (similar to hedge funds). I guess you can't have it both ways.

Nov 03 10:58 PM

[tryin2farm:]

I am a beginning farmer looking for an investor to buy farm ground around my area in iowa and hire me to farm it. [e-mail]

Nov 05 01:05 AM

[tryin2farm:]

Also does anyone here know where I could look to find an investor?


On Nov 05 01:05 AM tryin2farm wrote:

> I am a beginning farmer looking for an investor to buy farm ground
> around my area in iowa and hire me to farm it. [e-mail]

Nov 05 01:10 AM

[Karldean:]

T.Marc puts his money where his mouth is, look at the jowls on that sucker, no disrespect intended. Got friends out here that look just like him, they eat pork, beef, deer and fish and lots of it with their beer. Land here used to sell for 100 an acre now they aren't scared to ask 10000, sit on it I say, I'll buy that stuff with gullie's on it for 500 and doze the gullie's away, like sittin' on a dozer anyway. It's like watching a gulley turn into gold. Buy land, plant it, feed critter's, those sort of things work for you around the clock. Sit on the porch and watch 'em feed, invest in anything that has the potential to make a turd.

Nov 15 02:54 PM

[tryin2farm:]

No one?


On Nov 05 01:10 AM tryin2farm wrote:

> Also does anyone here know where I could look to find an investor?
>

Nov 19 10:30 PM