Thursday, June 5, 2008

NYTimes: Food is Gold, So Billions Invested in Farming

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Thanks to the multiple (5!) readers who sent me this same article - most have been with me for a long while so they know one theme I proposed starting in the winter - the value of farmland and hard assets in the agriculture industry.

I first wrote about it on the blog on Feb 1 [Starting Position in Powershares DB Agriculture Fund]

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.

Then on Feb 8 [Wheat is the New Corn]

This is part of the very awful cycle I've been talking about since last summer. Take out all the issues about weather, droughts, climate change, whatever. The simple fact is new farmland is not being brought online at a very quick pace. Crop yields are increasing but not nearly enough to support demand.

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

Then on Mar 12 [Grain Boom May Spark Rural Revival]

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.

Etc. Quite a few other posts touched on this topic, and today in the NYTimes we have a great story outlining that "smart money" is following my game plan. If only I had the funds to follow up on my own ideas. Notice who is in the middle of this all - Blackrock (BLK) who else. [May 8: Blackrock is Fix it Firm to Manage Risky Assets of Others in Distress]
  • Huge investment funds have already poured hundreds of billions of dollars into booming financial markets for commodities like wheat, corn and soybeans.
  • But a few big private investors are starting to make bolder and longer-term bets that the world’s need for food will greatly increase — by buying farmland, fertilizer, grain elevators and shipping equipment.
  • One has bought several ethanol plants, Canadian farmland and enough storage space in the Midwest to hold millions of bushels of grain.
  • Another is buying more than five dozen grain elevators, nearly that many fertilizer distribution outlets and a fleet of barges and ships.
  • And three institutional investors, including the giant BlackRock fund group in New York, are separately planning to invest hundreds of millions of dollars in agriculture, chiefly farmland, from sub-Saharan Africa to the English countryside.
  • “It’s going on big time,” said Brad Cole, president of Cole Partners Asset Management in Chicago, which runs a fund of hedge funds focused on natural resources. “There is considerable interest in what we call ‘owning structure’ — like United States farmland, Argentine farmland, English farmland — wherever the profit picture is improving.”.
  • The investors plan to consolidate small plots of land into more productive large ones, to introduce new technology and to provide capital to modernize and maintain grain elevators and fertilizer supply depots.
  • But the long-term implications are less clear. Some traditional players in the farm economy, and others who study and shape agriculture policy, say they are concerned these newcomers will focus on profits above all else, and not share the industry’s commitment to farming through good times and bad.
  • Grain elevators, especially, could give these investors new ways to make money, because they can buy or sell the actual bushels of corn or soybeans, rather than buying and selling financial derivatives that are linked to those commodities. When crop prices are climbing, holding inventory for future sale can yield higher profits than selling to meet current demand, for example. Or if prices diverge in different parts of the world, inventory can be shipped to the more profitable market.
  • Perhaps the most ambitious plans are those of Susan Payne, founder and chief executive of Emergent Asset Management, based near London. Emergent is raising $450 million to $750 million to invest in farmland in sub-Saharan Africa, where it plans to consolidate small plots into more productive holdings and introduce better equipment. Emergent also plans to provide clinics and schools for local labor.
  • We are getting strong response from institutional investors — pensions, insurance companies, endowments, some sovereign wealth funds,” she said.
  • The fund chose Africa because “land values are very, very inexpensive, compared to other agriculture-based economies,” she said. “Its microclimates are enticing, allowing a range of different crops. There’s accessible labor. And there’s good logistics — wide open roads, good truck transport, sea transport.”
  • Last October, the London branch of BlackRock introduced the BlackRock Agriculture Fund, aiming to raise $200 million to invest in fertilizer production, timberland and biofuels. The fund currently stands at more than $450 million.
Conclusion: Can only hope one day to have the money to invest in the early ideas, and not just blog about them.

Long Blackrock in fund; no personal position


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