Value and Investing
Why Invest in Farmland?
Farming is the oldest business on earth and consistently productive. Everyone has to eat in order to survive. The production of almost all food can be traced back to farmland around the world in some way.
Long term an investment in farmland will provide a steady stream of income and capital gains due to the increasing global demand for agricultural products driven by worldwide population growth, rapid growth in emerging markets, and continued demand for ethanol and bio-fuels. The demand for agricultural commodities are outpacing supply which positions farmland for long-term appreciation.
In current markets investors are looking to invest in farmland for some of the following reasons:
Farmland is a strong portfolio diversification reducing broader volatile market impacts
Farmland is a good inflation hedge due to farmland values increasing faster than inflation
Farmland delivers higher levels of excess return per unit of risk
Farmland historically delivers high total returns outperforming mainstream assets
Farmland historically has shown itself long term as a strong capital protection
Farmland also provides a regular income producing asset
What the Experts Are Saying?
Financial experts agree that investing in farmland is less risk and higher return than investing in stocks and bonds.
In America, business magnet Warren Buffet’s annual must-read shareholder letter explained famously that for $9.6 trillion, you could buy all the gold in the world, and it would fit into a nice cube inside of a baseball field diamond. Or for that money, you could buy all US cropland (400 million acres) + 16 Exxon Mobils, and still have another $1 trillion in pocket money left over. As he put it, it's a no brainer. Buy the industrials and the cropland, and forget about the big block of gold.
Warren Buffet CNBC
Legendary Wall Street trader and best-selling author Jim Rogers recently offered this unconventional advice: “If you want to get rich, you should be investing in farmland.” He thinks farmland is undervalued, and it will be an investing sweet spot for the next two decades, according to a talk he gave at a 2012 Global AgInvesting Conference in New York. "Demand is rising faster than food supply," he says. "So, farmland prices will keep growing." He adds that more people in America study public relations than study farming. We have no farmers. There’s going to be a huge shift in American society, in the places where one is going to get rich. The stockbrokers 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.
Jim Rogers on the Bottom Line
Steve Rommick portfolio manager of FPA Crescent fund said “Farmland is Gold you can eat.” He explains it’s also a play on emerging economies. There’s more protein in ones diet in emerging economies. So as ones comes out of poverty, they eat better. So if you consider that it takes a pound to grain to get a pound of grain, in a grain-based diet, it’s two pounds of grain to get a pound of chicken, four pounds of grain to get a pound of pork, and seven pounds of grain to get a steak, and more if you want foie.
Steve Romick, CFA Managing Partner First Pacific Advisors
Pension Funds join forces in the move to invest in farmland. Last year one of the world's largest institutional investors, TIAA-CREF, partnered with pension funds including British Colombia Corporation and AP2 to create a $2 billion investment vehicle to buy farmland. Billions of dollars in funds will continue to flow into the agricultural sector as pension funds and hedge funds allocate more capital to farmland in an effort to boost long-term returns without dramatically lowering the overall risk profile of their portfolios.