Jim Rogers has said for years that the best career choice for many would be to find a way to get involved in agriculture. He said in a recent interview with Steve Forbes:
There's going to be a huge shift in American society, American culture, in the places where one is going to get rich. The stock brokers are going to be driving taxis. The smart ones will learn to drive tractors so they can work for the smart farmers. The farmers are going to be driving Lamborghinis. I'm telling you. You should start Forbes Farming.
Rogers has had a good decade as someone invested in farmland, commodities, and is enjoying the Asian boom of the last decade. In 2004 he wrote "Hot Commodities", and then in 2007 wrote "A Bull In China". He's predicting that the 21st Century will be the century of China.
The basic argument that farming is going to become a profitable venture over the next couple of decades isn't just held by Rogers, but is also defended by other wealthy investors, including Jeremy Grantham, the investment head of GMO, LLC. He said to Market Watch:
We are five years into a severe global food crisis that is very unlikely to go away... It will threaten poor countries with increased malnutrition and starvation and even collapse... Resource squabbles and waves of food-induced migration will threaten global stability and global growth. This threat is badly underestimated by almost everybody and all institutions with the possible exception of some military establishments.
The political impacts have already been seen just last year with the Arab uprisings. The Internet made the uprisings more likely, but exploding food prices were the catalyst. Don't expect that to stop anytime soon. It could be years before the food prices problem handles itself.
What's Causing The Food Crisis?
The food crisis isn't so cut and dry, however. Increasing global population, fewer people focusing on farming and going to other industries, and potential global warming have all led to food prices increasing. Add in the world's governments trying to flood the world with paper money to generate "growth", and the situation becomes more volatile.
It's important to note, however, that this isn't just a short-term opportunity, or about any single company in particular. This is a global trend impacting billions of people, and it won't disappear anytime soon. Food prices will continue to increase, and this means successful farming operations will see profit margins dramatically increase.
What Investors Should Do
Personally, I've been looking into buying a small farm over the next couple of years, though I haven't decided on it yet. For those looking for specific investments, there are quite a few options, though the wealthier investor is probably best off investing in actual farmland if possible:
- RJA. This ETN tracks Jim Roger's basket of agricultural commodities. If you want to invest directly in the price increases over time, this would be the way.
- Agribusinesses. Investing in agribusinesses is another indirect way to invest in long-term food price increases. The Market Vectors Agribusiness Farm ETF (MOO) offers a simple way to add diversified agribusiness stocks to your portfolio.
- Farmland REIT? I've seen rumors for a couple of years about a REIT that invests in farmland. This would be wonderful for investors looking to get long-term gains in farmland itself but aren't interested in actually going out and buying the land to manage or rent out. This will hopefully be developed in the next couple of years. When it does, I'll be regularly adding a position in the asset.
Some of the doomsday reasoning behind the food price crisis is off, and is just an oversimplified "we're running out of resources" argument that has made investors lose money for the last century. But some aspects are right, and investors should position themselves accordingly.