Countries Are Renting Farmland Abroad

Canadian Farmland

The equity and bond markets have benefited from a long period of low inflation, but ongoing and massive central bank liquidity injections point to a far less benign environment of elevated inflation ahead. Research by our firm, Agcapita Farmland Investment Partnership (Calgary, Canada based agriculture private equity firm) shows investors must be prepared to rotate into asset classes with different characteristics. During the last commodity bull market & high inflation period in the 1970’s, equities materially underperformed farmland.

- Western Canadian farmland went from around $100/acre to $550/acre (550% total return and 176% in inflation adjusted terms);

- Cash held in a money market account barely kept ahead of inflation (6% inflation adjusted return); and the

- S&P 500 index returned less than 2% per year (a loss of almost 50% in inflation in adjusted terms)

We believe the world is still in the early stages of this current commodity bull market. When agriculture commodities prices are compared against their previous inflation adjusted highs they are significantly discounted implying scope for further increases:

- Corn is US$ 4/bushel currently compared to US$16/bushel in 1974,

- Wheat is US$ 6/bushel currently compared to US$27/bushel in 1974

- Canadian farmland is C$ 660/acre currently compared to C$1,100/acre in 1981

Another interesting metric is the long-term average ratio of the Commodities Research Bureau Index versus the S&P 500 which is currently around 1.5 times. Simplistically, this ratio indicates how much S&P 500 stock you can buy with a fixed basket of commodities. Some important points:

- During the commodity bull market of the 1970s, the ratio was consistently higher than 2 times for over 10 years – it peaked at almost 4 times.

- The ratio is currently at around 0.5 times - significantly below the 1.5 times long-term average, just slightly above the 0.15 all time low reached in 1999/2000 and still very far below the almost 4 times multiple reached in the last commodity bull market. We still appear to be at an all time low relative valuation between “hard assets" versus "stocks.”

- If history is a guide, the ratio of hard assets to stocks will have moved much higher before this commodity bull market is over.

- How? Stocks will continue to fall and/or commodities will continue to climb – most likely a serious combination of both as investors, fearing inflation, rotate out of stocks into commodities – the cycle of “inflation, rotation, hard assets”.

Agcapita allows farmland investors to cost effectively allocate a portion of their portfolios to hard assets in the form of Canadian farmland via its professionally managed Agcapita Farmland Investment Partnership. Agcapita Farmland Investment Partnership is the third in a family of private equity funds which has grown to almost $100 million in assets under management. Agcapita’s investment team has over 40 years private equity and fund management experie

Thoughts seem off topic

I was speaking with a professor at LSU about composting and land reclamation (or reforestation, as you will). He told me a story about the midwest during the Great Depression and how, after a generation of farming and cutting down all the trees, that area had started a process of desertification. Part of the New Deal had been to have the civil conservation corps go back into that region and plant windbreaks to stop the spread of desert (the dust bowl) and to reclaim those farmlands. Part of the CCC program had been to plant the wind breaks and then to water the trees by hand until they took root. Driving through that region, now, I can't compare present day with the pictures I have seen of the area from the 30's.

I wonder if there is an application of this manner to be put to use in the desert, like the Israelis have in the Negev. Combined with hydroponics as Goldie mentioned above, that may turn the tide on trend.

Also, perhaps we need to look at stopping the spread of our people into unpopulated regions that were once used for farmlands. Instead of growing out, like a swarm of locusts, we might push our growth vertically, like the Japanese. That way, the farm lands and forests, critical for our survival as a global ecology, might be left intact. (See the Green Belt in Boulder, CO for an example.)

Willing Farmer

I would love to meet up with these people who need farmland. We are a small family farm and have invented technology that grows organically AND saves water while giving excellent produce hydroponically. Seems odd to be hydroponic and save water, but we have done it for 10 years. We also grow biointensively growing more produce on less land. Lack of land and water has not been a major concern for most Americans up to this point, but until that point, we would love to help those in need with the capital to do something with the technology instead of putting it on a shelf when it can save the world.

fuel and food

Ethanol production doesn't destroy food, which is why the mandate will never be abolished. The USA produces more ethanol than any other country, including Brazil, but our country still doesn't produce enough compared to our energy demand. When ethanol is made, the leftover parts of the corn are made into animal feed. This feed is higher in protein, so it is more valuable than corn to feed to animals. We should export more meat, but first we need to assure other countries that our meat products are safe.

Consider US grain for oil

Since there is some concern in the technical community that ethynol produced from corn is not as effecient as that from sugar cane as is done in Brazil, we should consider in Congress to revise the mandate for ethynol produced from corn, and continue engineering on wind, oil exploration, solar, more efficient cars, and emphatically stress conservation.

It is realized that the longer we delay this decision, the more difficult it is to convince those lobbyists who are being subsidized to produce ethynol.

Then we can return to producing corn for domestic use, and barter the remainder with oil rich nations that need more food and less oil.