Aug

22

 Michael Burry, of "The Big Short" fame, mentioned farmland a while back as an (the only?) investment he saw having value.

It appears now that there are companies that are developing and possibly planning the introduction of the "first" farmland REITs. One could imagine that this might have an appeal to the general public looking for an alternative to gold and other perceived "safe havens". Buying a piece of the farm…

Here is one company that has been mentioned as being interested in introducing farmland REITs. Those with experience in this area can critique if such a thing makes sense or not…or whether watching re-runs of "Green Acres" is a better bet for city slickers.

"Our goal is to develop an agricultural and farmland investment vehicle that provides unique value to our shareholders. We seek to achieve this goal by owning farmland that is leased to independent farmers that mostly produce row crops. We own six farms in California, each of which is leased to farmers producing fruits and vegetables."

Stefan Jovanovich comments: 

European syndicates wanting to get into the "beef" boom paid for the land and the Herefords and other stock that were brought in to Kansas to improve the breed of the wild Texas cattle that Mr. Hammond, Swift and Armour were slaughtering to great profit. Somehow, the profits were never realized, even though a number of enterprising cowboys got their start with their own spreads by liberating the "half-breeds" that wandered off the Europeans' land. The author of one study described the experience of the Dutch investors as a "long slow ride to nowhere".


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6 Comments so far

  1. douglas roberts dimick on August 23, 2011 7:26 pm

    Tulipomania

    Until viewing Stone’s Wall Street II, Money Never Sleeps, I had not been aware of the historical significance of the Dutch saga in speculative bubbles.

    See… http://en.wikipedia.org/wiki/Tulip_mania

    When one reads of ventures such as Gladstone, the question of credulity appears to be as much an issue of the general conditions of the investment environment at present as it does the quantitative relativity of the security itself a la valuation.

    SJ’s comment directs us to that central thread…

    Is the proposition truly an investment vehicle or merely a flexionic taxi looking to take us for a ride until that first fork in the road?

    Growing up around farming, I have witnessed first hand how the suits take the farmers to the cleaners on a systematic basis. Given the deteriorating state of both regional and global marketplaces, it takes little here to make a convincing argument that this scheme smacks as more of the same — only here it is the investor more so than the farmer that will get the horns after being sold the bull…

    dr

  2. farmland investment on August 24, 2011 5:05 am

    Farmland in my opinion will be the most valuable aset class n earth in 25 years time.

    By then there will be close to 8 or 9 billion people to feed and less productive land to do so with, and with no discerable way to increase yield from existing land.

    All in all, when 9 billion people compete for 5 billion people’s worth of food, thos who are growing and selling it will be best placed to profit.

    That said of course, new technologies could allow us to increases tiled, but that requires the input of capital to allow farmers to implement new methods and chemicals, which ultimately also means food prices have to rise to fund that.

    Buy farmland, they are certanily not naking any more and we certainly will always need it.

  3. douglas roberts dimick on August 25, 2011 11:43 am

    Hi FI,

    Agreed on the importance of farms and agriculture. However, from an investment standpoint…

    The problem with a static set of assumptions, for instance, as assumed in the referenced Gladstone deal, is that the farmland you acquire will be viable 5, 10, 20, 30 years from now.

    Global warming is projected to drastically affect that set of assumptions albeit corporate farming issues as if the industry continues to consolidate (or not).

    In Maine, there is a rebirth of small independent farms in the past five years. People are seeking alternative, local approaches to food that is not organically altered by man — as an example.

    How will such dynamics affect that same set of assumptions?

    Is it as the Chair hummed… “Only the Shadow knows…”

    dr

  4. farmland investment on September 1, 2011 5:02 am

    Douglas,

    I agree with your points. Farmland as an investment asset should be viewed as lng-term, therfore it is essential to consider the viability and value of the asset (i.e. its production capacity) in 10 or 20 years time.

    Soil quality and modern, sustainable farming practices and the availability of and rights to use water are all important factros to consider in the longevity of a farmland investment.

    Many people overlook the fact that sustainability in practice and protfitability in the long-term are not mutually exclusive concepts and in fact one leads to the other.

    DG

  5. douglas roberts dimick on September 3, 2011 6:45 pm

    DG,

    Agreed.

    dr

  6. Kermit on September 4, 2011 6:48 pm

    Sorry, but I’ve heard it all before. As one who survived the 80s in agriculture and recently anticipated (and profited from) what I’ve called the thirty year bull in corn, I find this discussion interesting. The saying that farmland should be bought because they aren’t making any more of it comes from at least as far back as 1980, just prior to the inevitable price decline that ruined many farmers in the mid 80s. It is interesting that comments here are so similar to what I remember from that time just prior to the farm depression of the 80s.

    Farmland REITs appear to me to be right on time. The last three times we saw something like this in agriculture, once the top was in and we saw demand destruction, it took twelve years - not for the price to go back up - but for the price of corn to stop going down. The declines were from 1920-1932, 1948-1960, and 1974-1986.

    Maybe it really is different this time . . . but it sure looks the same to me.

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