Agricultural prices have been rallying for several years now, but Jim Rogers thinks there’s still room to grow.Compare/contrast with their Murdochian cousins.
The commodities investor said on Tuesday that he is still bullish on agriculture, calling it a great place for investors to be for the next two decades.
Prices of agricultural commodities are still relatively cheap compared to those of metals and energy, and the world is scrambling for arable farmlands to feed a growing population, Mr. Rogers told a packed audience at the Global AgInvesting conference, at the Waldorf-Astoria Hotel in New York.
However, how to ride on the agricultural bull run remains a tricky issue.
The most profitable way is to invest in commodity futures, but it is not a game for everyone given the extreme volatility and high capital requirements — “unless you know what you’re doing,” Mr. Rogers said in an interview with the Wall Street Journal on the sidelines of the conference.
Short of becoming a farmer, investors can benefit from buying a commodity index product, investing in currencies of agricultural nations and even getting a piece of farmland, Mr. Rogers said. As for individual commodities, investors might want to pick those that are off the most from the highs, he said.
Farmland has become a popular asset class among investors. By owning a piece of agricultural land, investors expect to see cash flows based on the proceeds. But it requires a big upfront investment and is not exactly liquid. To fill that void, many farmland investment companies are being set up to attract those who want a piece of the land but don’t want the hassle of hiring farmers, planting or irrigating. Dismissing the bubble talk surrounding farmland investment, Mr. Rogers said the investment idea is probably “in its third inning.” He is on the board of such a company, Genagro Ltd., which farms in Brazil....MORE
From Saturday's Barron's:
Down -- but Far From Out -- on the Farm
After a decade in which farmland prices kept heading steadily north, the market looks ready to cool off. But the result is likely to be a return to normal, not disaster.
Over the past decade, prices for U.S. farmland have boomed, capped by a 20%-plus jump last year in some of America's most fertile regions.
The bad news: The torrid gains are coming to an end. The good: A crash, like those that followed the tech, dot-com and housing bubbles, is unlikely. Instead, farmland prices probably will return to a more normal ebb and flow of modest gains and declines.
The recent bonanza for U.S. agriculture was driven by stepped-up food demand from China and other emerging lands, and the rising use of corn-based ethanol as a gasoline additive in the U.S. Throw in good domestic demand for farm products, plus crop subsidies from the federal government, and it's no wonder farmers' incomes hit record highs.
As well, many have been plowing their harvest riches back into the ground, buying more land and shunning stocks and bonds. In 2002, Iowa land averaged $2,083 an acre; in 2011, it went for $6,708.
But now, the U.S. Department of Agriculture predicts, net farm income will decline nationally, by 6.5% this year. Some U.S. crop subsidies may end as Congress seeks to whittle spending. One big subsidy for ethanol production already is gone, while mandates to blend more of the biofuel with gasoline aren't materializing. And China's growth is slowing, which could reduce agricultural exports to that giant nation in the short run -- although they're almost certain to remain substantial over the long term.
FARMLAND HAD A BUMPER YEAR in 2011. The National Council of Real Estate Investment Fiduciaries' Farmland Index rose 8.7% in the fourth quarter alone, with prices in every farm region rising. For the entire year, many of the Federal Reserve banks' agricultural surveys showed stout price appreciation, with the Kansas City branch recording a gain of 25% over 2010's already heady level; Chicago, a 22% jump; and Dallas, a 14% rise. Friday, the council reported that the national index had climbed a further 3.78% in this year's first quarter.
The sharpest 2011 advances were in the Corn Belt, parts of which have enjoyed a quarter-century of consecutive annual farmland price increases. Says David Oppedahl, business economist at the Chicago Fed: "This is a factor of high corn prices -- and the profit that can be made from farming corn or soy." The Corn Belt roughly includes Illinois, Indiana, Iowa, Michigan, and parts of Kansas, Minnesota, Missouri, and Nebraska. It includes the Federal Reserve's Seventh District, where some of the best agricultural land in the world is found....MORE