Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Stock Market Intermediate Trend Intact - 25th Jan 21
Precious Metals Could Decline Before their Next Attempt to Rally - 25th Jan 21
Great Ways of Choosing Good CMMS Software for a Business - 25th Jan 21
The Dark Forces behind American Insurrectionists - 25th Jan 21
Economic Stimulus Doesn’t Always Stimulate – Pushing On A String - 25th Jan 21
Can Karcher K7 Pressure Washer Clean a Weed Infested Driveway? Extreme Power Test - 25th Jan 21
Lockdown Sea Shanty Craze - "Drunken Sailor" on the Pirate Falls Crazy Boat Ride - 25th Jan 21
Intel Empire Fights Back with Rocket and Alder Lake! - 24th Jan 21
4 Reasons for Coronavirus 2021 Hope - 24th Jan 21
Apple M1 Chip Another Nail in Intel's Coffin - Top AI Tech Stocks 2021 - 24th Jan 21
Stock Market: Why You Should Prepare for a Jump in Volatility - 24th Jan 21
What’s next for Bitcoin Price – $56k or $16k? - 24th Jan 21
How Does Credit Repair Work? - 24th Jan 21
Silver Price 2021 Roadmap - 22nd Jan 21
Why Biden Wants to Win the Fight for $15 Federal Minimum Wage - 22nd Jan 21
Here’s Why Gold Recently Moved Up - 22nd Jan 21
US Dollar Decline creates New Sector Opportunities to Trade - 22nd Jan 21
Sandisk Extreme Micro SDXC Memory Card Read Write Speed Test Actual vs Sales Pitch - 22nd Jan 21
NHS Recommends Oximeter Oxygen Sensor Monitors for Everyone 10 Months Late! - 22nd Jan 21
DoorDash Has All the Makings of the “Next Amazon” - 22nd Jan 21
How to Survive a Silver-Gold Sucker Punch - 22nd Jan 21
2021: The Year of the Gripping Hand - 22nd Jan 21
Technology Minerals appoints ex-BP Petrochemicals CEO as Advisor - 22nd Jan 21
Gold Price Drops Amid Stimulus and Poor Data - 21st Jan 21
Protecting the Vulnerable 2021 - 21st Jan 21
How To Play The Next Stage Of The Marijuana Boom - 21st Jan 21
UK Schools Lockdown 2021 Covid Education Crisis - Home Learning Routine - 21st Jan 21
General Artificial Intelligence Was BORN in 2020! GPT-3, Deep Mind - 20th Jan 21
Bitcoin Price Crash: FCA Warning Was a Slap in the Face. But Not the Cause - 20th Jan 21
US Coronavirus Pandemic 2021 - We’re Going to Need More Than a Vaccine - 20th Jan 21
The Biggest Biotech Story Of 2021? - 20th Jan 21
Biden Bailout, Democrat Takeover to Drive Americans into Gold - 20th Jan 21
Pandemic 2020 Is Gone! Will 2021 Be Better for Gold? - 20th Jan 21
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Investing in Farmland for Healthy Profits

Commodities / Agricultural Commodities Sep 06, 2011 - 08:22 AM GMT

By: Money_Morning

Commodities

Best Financial Markets Analysis ArticleLarry D. Spears writes: If Mark Twain was talking about investing in farmland when he suggested "buy land - they're not making anymore," then he knew more about finance than he's credited with.

The Federal Reserve Bank of Chicago just reported that prime farmland prices in the heart of the U.S. grain belt (Indiana, Illinois, Iowa, Michigan and Wisconsin) - were up 17% in the second quarter compared to 2010, the biggest year-over-year increase since 1977.


That's on top of a 12% jump for all of 2010, the second-largest yearly increase in the past 30 years.

In fact, farmland value since 2000 has appreciated by more than 1,200%, according to the National Council of Real Estate Investment Fiduciaries (NCREIF), and netted nice profits for farmland investors.

Just look at the NCREIF's Farmland Returns Index, which measures the quarterly performance of a large pool of individual agricultural properties acquired in the private market for investment purposes.

The index has posted some incredible quarterly gains over the past decade - most notably 22.78% and 14.63% in the fourth quarters of 2005 and 2004, respectively.

Farmland gains for the first two quarters of 2011 were recently reported at 2.40% and 1.48%.

What's more, negative quarterly returns for farmland are extremely rare. Only once since 1992 has the NCREIF Index fallen period-over-period, and that came in the fourth quarter of 2001 amid post-9/11 economic turmoil.

Given the large value gains since 2000, a lot of potential has been realized, but there's plenty of room for future profit.

"It's not the first inning of the game," Shonda Warner, managing partner at Chess Ag Full Harvest Partners, told CNBC, "but it's not the eighth inning either."

Farmland Prices: Plenty of Room to Grow
Rising commodity prices are the primary reason farmland values have soared. They've carried sales prices on recent land transactions in Iowa and Illinois to as much as $13,000 an acre - almost double what they were just five years ago.

U.S. Department of Agriculture (USDA) Chief Economist Joseph Glauber said land value increases that large may not be sustainable, but he acknowledged that steadily increasing food demand would likely prevent a major collapse in farmland prices. The USDA estimates rising global food demand will increase annual U.S. agricultural exports to roughly $113 billion by 2017 from $98.6 billion in 2009.

Annual population growth is advancing at a rate of 1.1%. That means the population of the entire planet will be 9 billion by 2050, up from about 7 billion now.

And many big-name investors are major farmland buyers, driving demand that will boost prices even higher.

Noted commodity investor Jim Rogers told CNBC he began buying farmland for both his personal and fund accounts several years ago. And numerous sources have reported that billionaire hedge-fund kingpin George Soros has been selling gold to purchase farmland blocks in various countries. One fund he controls owns 23.4% of a private South American farmland and renewable-energy conglomerate called Adecoagro.

Investment management firm BlackRock Inc. (NYSE: BLK) recently announced it had taken a multi-million dollar position in farmland in several Mid-western states.

"Farmland is a theoretically safe, income-producing, inflation-protected hedge," former Morgan Stanley (NYSE: MS) strategist Barton Biggs, who now runs a hedge fund for Traxis Partners LP, told CNBC. He said it has historically provided a "rock-steady return" that he estimated at 6% to 7% annually.

Another perk for farmland investors: it has a high correlation to inflation, historically 90% to 95%. As inflation continues to soar, a good farmland investment can offset the price-gain pain.

Investing in Farmland: Six Ways to Play Now
Not everyone can quickly and easily purchase blocks of farmland. For those needing an alternative, the closest thing to a pure farmland play among exchange-traded funds (ETFs) would be the Market Vectors Agribusiness Fund (NYSE: MOO).

MOO seeks to replicate the performance of the DAXglobal Agribusiness Index, which consists of global companies engaged in agriculture business, many of which do have large farmland holdings. MOO shares are driven more by commodity prices than by land prices, so the volatility is higher - but so are the chances for relatively quick gains.

A more indirect way to play farmland values is to invest in a large U.S.-traded agribusiness company. Most own or lease large chunks of land in conjunction with their other operations.

Three you might consider are:

•Bunge Ltd. (NYSE: BG), recent price $64.56 -- Bunge operates in about 40 countries, where it buys, sells, stores and transports oilseeds and grains, makes protein meal for animal feed and edible oil products for commercial and retail consumers, produces sugar and ethanol from sugarcane, mills wheat and corn to make ingredients for food companies, and sells fertilizer in North and South America. The company was founded in 1818, and the 2010 value of its farmland, plants and equipment was listed at $5.31 billion. The company earned $6.83 a share in its most recent fiscal year, has a modest trailing 12-month Price/Earnings (P/E) ratio of just 8.85 and pays a dividend of $1.00 a share, yielding 1.6%.
•Archer Daniels Midland Co. (NYSE: ADM), recent price $28.26 - Archer Daniels' is a major processor of oilseeds, corn, wheat, cocoa and other agricultural commodities and manufactures corn sweeteners, vegetable oil and protein meal, flour, biodiesel, ethanol and other food products. It also has a grain elevator and transportation network to store, clean, and transport many agricultural commodities. Its property holdings, including farmland, were valued at $8.71 billion for the year ending June 30, 2011. It reported at net profit of $1.93 billion, or $3.13 a share, and pays a 64-cent dividend for a yield of 2.3%.
•Monsanto Co. (NYSE: MON), recent price $68.93 - Monsanto and its subsidiaries are among the world's leading suppliers of seeds - both natural and genetically engineered - fertilizers, herbicides and other products designed to improve productivity and reduce farming costs. It operates in nearly 80 countries, including China. Monsanto in fiscal 2010 had net income of $1.1 billion, or $2.88 a share, on revenue of $10.5 billion. Its $1.20 dividend provides a yield of 1.71%.
Two foreign-based companies that do have good liquidity and fairly easy access in the U.S. are:

•Cresud Inc. ADRs (Nasdaq: CRESY), recent price $13.95 - Based in Argentina, Cresud also engages in farming in Brazil and has investments in agricultural operations in a number of other Latin American countries, focusing on grains, beef cattle and milk production. The company earned 61 cents a share on revenue of $1.88 billion in its most recent fiscal year. The stock pays a dividend of 33 cents a share, good for a 2.43% yield.
•Cosan Ltd. (NYSE: CZZ), recent price $10.97 - Brazil-based Cosan grows and processes sugar for human consumption and for use in ethanol production. It also sells sugar all over the world, holds property - including farmland - valued at $4.14 billion in 2010, and had more than $900 million in cash and equivalents at the end of its latest fiscal year. The company logged $8.28 billion in revenue last year, which netted per-share earnings of $3.36. The 28-cent dividend provides a yield of 2.55%.

[Note: Cosan is a component in the iShares MSCI Brazil Index, which trades as an ETF (NYSE: EWZ), recent price $65.91, so you might consider that as an alternate investment if you want more South American diversification.]

One More for the Road...
Small investors may get frustrated at the lack of liquidity when investing in farmland, and no real estate investment trusts (REITs) are currently listed on U.S. exchanges - but it may be only a matter of months before there's a pure-play farmland option available.

Gladstone Investment Corp. (Nasdaq: GAIN) filed papers in late 2010 to create a REIT based on the holdings of its Gladstone Land Corp., an externally managed investment firm that owns two large farms in California.

The properties cover about 960 acres and are leased to Dole Fresh Vegetables, a subsidiary of Dole Food Company Inc. (NYSE: DOLE), which uses them to raise strawberries and various vegetables. Gladstone is raising money to buy more land and set up a farm mortgage division, and hopes to qualify for listing as a REIT by year-end.

Source :http://moneymorning.com/2011/09/06/investing-in-farmland-how-to-turn-healthy-profits-from-heartland/

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules