‘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.

Marc Faber is the publisher of the Gloom & Doom Report (and a Swiss fund manager) and he opines that the recent moves by the U.S. Treasury will only temporarily bring confidence back to the market leaving the longer term prospects looking much worse.

The global economy won’t fare any better for a while and the Western world and governments are trying to ignite credit growth, but their efforts will probably not succeed.

CNN.com on 10/23/08 notes in its short piece “Banks hit high on Fed borrowing” that commercial banks, suffering from the credit crunch, borrowed a record $105.8 billion/day from the Fed’s emergency lending window eclipsing last weeks rate of $99.7 billion/day.

RGE Monitor (rgemonitor.com) of 10/23/08 presents an interview from Bloomberg with Nouriel Roubini, NYU Professor, in which he states that the financial crisis has reached the point of sheer panic, producing …”massive dumping of assets” and “hundreds of hedge funds are going to go bust.” Professor Roubini continues noting that systemic risks are increasing in size and we’re seeing the start of a run on a large portion of the hedge funds which may encourage policy makers to shut down markets for up to a couple of weeks in the near future.

THE ECONOMY-’WELCOME’: We’d like to welcome the Sec. of The treasury, the “Head of the Fed“, the “Private Wealth Managers” from the big banks, and most of economic gurus from the “Stealth and Wealth” funds interviewed on business TV, et al,: welcome!

Our party’s been running for about six months at least down here at the “Where the Rubber Meets the Road” Lounge. There’s a few jugs of screw-cap wine left along with some Velveta and crackers over by the punch bowl (where the lady with the walker’s adding another “sweetening” of ‘grain‘); help yourself.

We’re glad you could finally find some time with your busy schedules and demanding jobs (some of us haven’t worked for sixteen months) to stop by and tell us how it was that the recession just started. You see, in between comparing tattoos, we’ve been exchanging info on job possibilities (networking I think you’d call it), new bus schedules, the length of the lines at several of the local food banks, and got to wondering what it was that finally threw us into a recession?

We really wouldn’t understand? Well, you’re probably right there but if we start to go into a depression, could you maybe give us a heads-up so that we could line up some tent space at our local nature preserve?

GEO-POLITICS: “ Pakistan Stares Into the Abyss”. This Staff article over at Energy Bulletin on 10/23/08 indicates that Pakistan may be going through its worst crisis in history. A burgeoning conflict between the Pakistani government and the Islamic militants along the Afghan border in conjunction with general economic degradation has forced the country to call on the IMF to avoid financial collapse. Pakistan, the only Muslim nation with nuclear weapons, is described as being “on the edge.”

FOOD: Energy Bulletin of 10/23/08 in its Food & Agriculture section article “Why we can’t pump faster” points out that “…easily extractable phosphate may have hit The Overshoot Point (TOP). And we have no new conventional sources. And phosphate essentially feeds the world..”

Until next week, keep your eyes on the horizon.