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Investments In Farmland – Part 2

Investments In Farmland -Part 2

‘Investments’ Part 2: ”Betting the Farm”, a Fortune Magazine article by Brian O’Keefe, accessed via money.cnn.com on 6/10/09, is sub-lined “As world population expands, the demand for arable land should soar. At least that’s what George Soros, Lord Rothschild, and other investors believe.”

At PrudentHome we’re not so much interested in the investment nuances of farmland as a commodity as we are in why some of the world’s foremost investors are interested in it and how those reasons might impact the average family/prudent home. Here are some of the ‘why’s” in the article:

  • “In the spring of 2008 spiking grain prices caused food shortages and rioting in dozens of countries before falling some 50% by December. … That crash has obscured a broader trend. Even after the correction, grain prices remain above their 20-year average, and food stocks around the world are still near 40-year lows. For many investors, last year’s shortages are a preview of what could lie ahead.”
  • “The fundamentals … . The simplest metric to consider is the amount of farmland per person worldwide. IN 1960 THERE WERE 1.1 ACRES OF ARABLE FARMLAND PER CAPITA GLOBALLY, ACCORDING TO DATA FROM THE UNITED NATIONS. BY 2000, THAT HAD FALLEN TO 0.6 ACRE (caps from PH) …. And over the next 40 years the population of the world is projected to grow from 6 billion to 9 billion.”
  • “… says Joachim von Braun, director general at the International Food Policy Research Institute, “With limited land and water resources, this will automatically lead to increased valuations of productive land. And it goes hand in hand with water. Water scarcity will probably increase even more than land.”
  • “The biggest investors in farmland over the next decade will probably be sovereign wealth funds and governments of crop-starved  countries eager to secure food supplies (PH note: they’re already doing it with essential raw materials such as oil and copper) for their rapidly growing populations. In 2008, China announced a $5 billion plan to develop agricultural assets in Africa. That’s just a start. Given that it has 20% of the worlds population but only 7% of it’s arable land and 7% of it’s freshwater resources.”

Regarding the views of one of the investors the article highlights: “There’s another thing she finds comforting about what she’s doing, “I’ve always personally liked the idea” she says, “that even if the bottom dropped out of this whole credit bubble and the world blew up, that the farmland, while it might not make a return for two or three or four years, was going to be there down the road. Because in the end, people have to eat.”

Last week, we mentioned in Part 1 of our “Investments In Farmland?” post, that we’d present some ideas regarding how the “why’ of farmland investments would affect the individual family. And here’s how: limits on the availability of farmland in the future will ensure the rise in cost of food and may very well bring into question its availability altogether.

There are additional factors regarding probable food cost increases and availability. These factors revolve around key “inputs” (positive & negative, direct & indirect) to farming/food production beyond the land itself and include: water (already mentioned), oil (90% of the worlds agriculture is fossil fuel dependent), phosphate (comprises about 12% of commercial fertilizer), weather/climate, the economy (national & international), pests (Ug99-wheat rust), population (numbers), and population – diet (what that population eats, i.e., it takes about seven pounds of grain to produce one pound of beef/USDA).

How can the individual family hope to confront these challenges from rising food costs and questionable availability? Here’s how: through the in-home storage of food (and life essentials), food processing (e.g., cooking, canning & drying equipment) and production necessities (e.g., tools, open-pollinated seeds, natural fertilizers & insecticides.)  Also add the knowledge and skills necessary to effect the foregoing. The family will have to know how to do more and more for itself in order to thrive: self-sufficiency must be the goal.

Until next time, keep your eyes on the horizon as the weathers changing fast.

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By J.P. Redoubt – June 28, 2009

Debt, Doom, and Food

Debt Doom, and Food–Wheat

The Economy–Debt Doom: “Can they pay it back?” by Colin Campbell at www2.macleans.ca, via lewrockwell.com today, sports this sub-line, “The U.S. is about to go broke and they’ll take us down with them”. Scary but apparently somewhat sensational unless you read on to find that this article very much revolves around the views of Peter Schiff. Here then are some of Mr. Schiff’s views and the articles highlights:

  • “Peter Schiff was making the rounds on U.S. cable news shows in 2007, warning about the collapse of the housing market, anchors and fellow guests literally laughed in his face when he launched into his gloomy predictions. That kind of meltdown could never happen, they said. The economy was on rock-solid ground.. In those rosier economic days, Schiff, the president of Darien, Conn.’s Euro Pacific Capital, was repeatedly cast as a successful broker who’d gone off the deep end.”
  • “These days, a vindicated Schiff is back on the talk show circuit with an even darker message. The current recession, he argues, is only the beginning of a larger economic restructuring. The American economy has been destroyed by years of reckless spending and borrowing. And now, the U.S. government is so deeply in debt that at some point in the very near future, he says, its lenders–namely China– are going to come to their senses and cut America off. …”When the system collapses –and it inevitably must, he insists–inflation will run wild as the U.S. prints money to support its spending habit. Interest rates will jump and everyone will suffer. The real day of reckoning is still to come.”
  • “Late last month, well-known bond guru Bill Gross, founder of Pacific Investment management Co., warned the U.S. could eventually lose its AAA investment grade ranking.”

A PrudentHome Note: Peter Schiff is one of a dozen or so financial and economic players who have been pretty much spot-on regarding the condition of the economy and future national and international economic conditions. It’s our view that this relatively small group (i.e., Jim Rogers, Nouriel Roubini) who have proven their predictive mettle, should  have our attention when they speak to the future. The government and the “blue Sky” business news employees predictions and opinions should be very suspect.

Food–Wheat: survivalblog.com (Jim Rawles’ blog) led us to an interesting site (marketskeptics.com) this 6/21/09 and an article entitled “USDA Deliberately Misleading Investors To Hide Looming Food Shortage” by Eric deCarbonnel. The article’s contents were not all that surprising, that the USDA was “finessing” the wheat production and consumption numbers to suppress grain prices, but what caught our eye as we finished this informative article was a 6/15/09 post entitled “Wheat: Living On The Edge”: … “a batch of entries on the world’s agricultural situation from Nogger’s Blog.” Here are a couple of entries we thought you might find as interesting as we did:

  • “So the top six exporting nations that account for over half of world production and 87.%5 of global trade in wheat are set to see their output fall by around 35.5MMT in the year ahead.”
  • “…it looks a nailed certainty that Argentina (a world class wheat producer and exporter/PH) won’t even have any wheat to export at all in 2009/10, and will probably be a net importer (despite the fact the USDA currently has them down to export 4MMT next season).”

Interesting, no?

Next time we’ll plan on finishing our post on farmland investment (Part 2) and how this effects the individual family. Until then, keep your eyes on the horizon as the weathers changing fast.

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By J.P. Redoubt – June 24, 2009