Investing in Farmland: Stocks vs. ETFs

by: Roger Nusbaum

Barron's had this to say about farmland courtesy of TIAA CREF;

"From a historic perspective, it has delivered a fairly stable 8% to 12% return" annually, said Jose Minaya, managing director for natural resources.

Soybean, corn and wheat prices can be volatile, but farmland is a finite resource and less vulnerable to weather conditions and other factors. It has low correlation to other markets but high correlation to inflation, so it's a good hedge. People are always going to eat, and population growth in emerging markets will mean increasing demand. Minaya notes that buying farmland is also "an efficient way to get exposure to water."

The article half jokingly wondered if there might be an ETF coming at some point. I don't think there is much argument about the niche being important but there is debate on whether it should be part of an equity portfolio and of so how to capture it.

I think this can be a place to add specialized exposure to South America or Asia. There are plantation stocks from Asia that for now are not so easy to trade or get information on, but still they exist and in time learning about them and accessing them will only get easier.

A couple of examples of names I have looked at in the past include New Britain Palm Oil Company which is listed in London but owns plantations in Asia. M.P. Evans (OTC:MPEVF) is also listed in London with operations in Asia. The volume on both is rough to be sure but it is access for anyone so motivated. There are also a bunch of related stocks with primary listings in Asia that are even tougher to trade. Whereas the two above are from London, I think trades can get done even if it takes patience and a padded limit.

South American names might be a little easier to access. Most people know about Cresud (NASDAQ:CRESY); I exited a personal trade on that name this past week. There is also Cosan (NYSE:CZZ) from Brazil, which is a sugar company. This one is big into ethanol, which might change the dynamic; that is up to anyone interested to figure out for themselves.

If you do any research here, looking at one company will lead to others to look at and you might find one that makes sense to you to own. I would suggest anyone going down this path look at a lot of companies even though the most you'd probably own is one. But making an afternoon of it with a football game on sounds like a pretty good day.

Disclosure: None