Saturday, June 14, 2008

Bloomberg: Farmland Reaps Bonanza for TIAA as Commodities Rise

It looks like a few more institutions have caught on to my thesis of farmland as fantastic investment opportunity, which I began proposing this winter [Jun 5: NYTimes: Farmland is Gold, So Billions Invested in Farming]. This is a sea change - hard assets having more value than stupid "financial innovations" of a debt laden, credit based society. We're going old school.

If I had a way to buy futures contracts on farmland I'd be buying that too. And yes I am very serious. I think values for farmland across the world are going to rocket in the next decade.

The way things are going, within a decade farmland is going to have more value than ocean front property.

I've said in the past if there was an easy instrument to purchase farmland, I'd like to be in it. Even more so in the former Soviet satellite nations where farmland is much cheaper than the American heartland.

I continue to have the ideas - now I need the money....
  • TIAA-CREF, the largest U.S. manager of retirement funds, bought $340 million of farmland in seven states in December.
  • George Washington University plans to earmark $100 million for agricultural investments during the next year.
  • From Iowa to South Dakota to Wyoming, gains in rural land prices have ranged from 78 percent to more than 200 percent, according to farmers and data from Farm Credit Services of America in Omaha, Nebraska.
  • Farm values probably will rise at an annual rate of 6 percent to 10 percent in the next five years, said Murray Wise, the chief executive officer of Westchester Group Inc., a Champaign, Illinois-based manager of $550 million of global farm tracts.
  • ``The land market has never been stronger. Never been stronger.''
  • College endowments, pension funds and real estate fund managers are buying land even as U.S. homebuilders dump thousands of undeveloped parcels.
  • ``There is a real transition from financial assets to real assets,'' said Don Lindsey, the chief investment officer of George Washington University's $1.1 billion endowment, in an interview earlier this week. ``Farmland is certainly one of them.''
  • Westchester Group bought a 2,150-acre farm in December southwest of Springfield, Illinois, when farmland went for $5,000 to $6,000 an acre, said Randall Pope, the company's president. Now the market is at $6,500 to $7,000 an acre, he said.
  • The average value of farmland has jumped by 220 percent in South Dakota and by 123 percent in Iowa during the past 10 years, according to a survey of benchmark farms conducted by Farm Credit Services of America. Values rose 78 percent in Nebraska and 118 percent in Wyoming.
  • Prices in Iowa increased 22 percent last year to a record $3,908 an acre, according to data compiled by Iowa State University Extension in Ames.
  • The surge in prices means the best investments may now be in Latin America, Eastern Europe and Australia, said Lindsey of George Washington University in Washington. (this is a point I've also made)
  • Wiltsie Cretsinger, 49, of Coon Rapids, Iowa, has seen the value of his 633 acres rise 200 percent in the past 10 years, outstripping the 22 percent return of the Standard & Poor's 500 Index. His land is now worth about $1.8 million and he's not looking to sell. If prices fall, then ``I'm going to be hungry to buy'' more land, he said.
  • Farmland prices plunged as much as 75 percent in the mid- 1980s, said Randy Hertz of Hertz Farm Management Inc. and Hertz Real Estate Services in Nevada, Iowa. An index of Indiana farm values compiled by Purdue University fell 56 percent from 1981 through 1987. It took 15 years for land prices to recover, said Good of the University of Illinois.
  • Glenn Kreuder, 48, a farmer and investor in Garden Grove, Iowa, sold 70 acres of land in Wayne County, Iowa, for about $4,000 an acre. He held the land for about two years. ``It probably almost doubled in that period of time,'' said Kreuder
Or it all could just be a big bubble... for those who don't believe in a World of Shortages I suppose that would be the dominant view. Myself, if I were running a private equity or hedge fund - I'd be sending people out to Latin America and Eastern Europe to acquire arable land; in these type of markets consistent 15-20% gains are nothing to dismiss. It looks like the huge pools of capital are already bidding up US land - these are the type of dislocations only exaggerated by stupid policies (corn ethanol) and easy money central banks (all this liquidity needs to go somewhere), layered on top of true structural supply/demand issues. Yet no one in leadership looks into the mirror wondering if they could indeed be the nexis for many of the problems... it is quite obvious when you put the jigsaw puzzle together.

You're going to see a lot of fellas in overalls driving around in Porsche's the way things are going...

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