The Schober article mentioned above is short on detail. I left a comment asking if any of the publicly traded companies in the space can serve as proxies (something I am trying to sort out). I also asked about whether the economics (my meaning was the subsidies) interfere with the theme. Every time I mention these one reader brings up the difficulty along these lines which reminds me that Schober mentions some eye-poppingly good return numbers but doesn't provide attribution.
The motivation behind this quest is the belief that the old ideas about asset allocation will continue to need to evolve to include other things. In the last few years we have collectively come to learn much more about commodities than we did before and many more of us are using exchange traded products to capture the space. Ditto in much smaller numbers with absolute return vehicles and maybe currencies too.
These tools have hopefully helped people fair better than the S&P 500's decade-to-date 31% decline (SPX closed at 1469 on December 31, 1999). I think more people will get on board with this but I believe the concept will have to continue to evolve into more choices while walking the fine line of going from hedging an equity portfolio with small exposure to diversifiers to owning a bunch of diversifiers hedged with a little equity exposure. Remember the market action from this decade, as bad as it has been, is not radically different from what has happened a couple of times before and going forward (foreign?) equities are likely to be the best way to go until the 2030s or 2040s when we have another lousy decade.I have viewed farmland stocks as potentially replacing REITs as diversifiers. Despite a reader accusing me of something called recency(sp?) bias the last time I mentioned this I have given up on them as being diversifiers. I've been interested in farmland stocks for almost a year and half and still have not drawn a final conclusion but that is just part of the process.
There are non-public vehicles for buying into farmland and I suspect there will be exchange listed vehicles at some point if the stocks out there turn out to not be the way to go.
What do tarantulas have to do with farming? Nothing but long time readers of the blog may recall that we get tarantulas here every fall and this guy is the first one we've seen. Actually my wife is the one who saw it and took the picture.
12 comments:
I've just figured out the farmland investment angle--international healthcare. Bloomberg has a short article today that says Indians are turning to remedies containing cow urine extract to fight off the swine flu. Ewww....
Male Wanted.
Female tarantula looking for male same. Must be well groomed. No long hairs.
Roger, interesting article. I grew up working on my dad's farm in northern Minnesota, and my brothers and I have started to buy farmland in that area. Wheat, barley, and soybeans are the biggest crops along with some sugar beets. We have 230 acres and are looking to buy 160 more.
I have no idea how you would invest in farmland without knowing the area and the local farmers. These guys do deals with a handshake. We lease our land to farmers using contracts that reset every 3 years to reflect grain prices. This year, after costs like property taxes and insurance, our rental payment will be around 5.5% of the value of the land. I look at that like a stock with very low volatility (albeit illiquid) that pays a 5.5% dividend. Good deal. We are confident that someone will always want to farm that land -- it's very rich, flat, and has almost no risk of flooding.
Anyway, just a personal anecdote. I think it's a great investment but not sure how I'd get into it as an outsider. I do wonder if there's a way for us to turn our land into a REIT someday and sell shares to others...
Thestocksurfer hits the nail on the head. Farming is local; how can you invest in it from a distance?
If you owned farmland that was already being worked (by you or a renter), and needed cash, I could buy a share of your land as a limited partner and let you carry on with the business you know; but buying it outright, or running a public corporation this way would be impractical IMHO.
Maybe my view is too simplistic.
If land (property) does not have a structure on it that generates rent, forget it. Buying right and receiving a solid rental income plus all of the depreciation benefits trumps most land schemes that often result in a bad result for the owner.
Speculation vs. investment.
T
I do not like this play either, which probably means this is a real opportunity considering all the negative feed back.
But, isn't farm land in other countries where the land and labor is cheap be the way to go. Add US farming techniques to the puzzle and you should be able to increase yields from the land a lot.
Do you have any favorite stocks that meet the criteria I have outlined?
just read news about Turkey controlling Iraq and Syria's rivers; the Colorado doesn't reach the sea, and Vegas has water controls; Nat'l Geog. did an article about drought/ irrigation issues in Australia -see Texas, Montana, etc.
Maybe water-oriented securities would correlate with farmland.
PH
stocksurfer,
I don't see any reason why you couldn't set up your operation as a REIT. It seems like you're doing essentially the same thing as PCL, except on a much smaller scale. In any case, its poissible to set up a private REIT (as opposed to a publicly traded one).
Old Trader
Roger,
it seams that anything that is a hard asset is going up. Land, gold, real estate. The fed has been pumping liquidity. This is phase 1. Phase two is to extract that liquidity. If they do not do it, we will have big inflation in our hands. The market is saying that the fed may not act on phase two or it may be slow to act. It is a difficult pahse. If the phase acts on pahse two then the hard asset prices will stabilize.
Best,
Jeff from Milan, Italy
Roger,
Any thoughts on this article:
Why Default on U.S. Treasuries is Likely
http://www.econlib.org/library/Columns/y2009/Hummeltbills.html
I'm pretty sure I have mentioned this before. The current value of farmland in most parts of the country is decoupled from the underlying value of the crops/livestock that land can support. If you are attempting to buy farmland as a diversification play with commodities...I doubt it will work in the long term. The profitability in farming is largely tied to USDA farm programs. A radical change in the parameters of the farm program or other govt program) can produce radical changes in the economics of farming. Recent case in point is ethanol (good for farms). The 1970s grain embargo by the Carter administration (bad for farms) The present system of subsidies does not allow widespread corporate (read publicly traded) farming. Truth be told, it works to the multinational grain/processors advantage by allowing them to buy product at a much lower cost. Unitl this changes, stocksurfer is correct, agriculture will continue to be local.
Just as an aside, in my area the real estate bubble of this decade produced some interesting results. Land speculators came into town driving land prices up into the stratosphere. Many "hayseed" farmers sold giving the buyers terms. To make a long story short, the hayseeds for the most part have foreclosed, got their land back albiet with a higher basis, and now have a big pile of cash even after paying taxes and will be content to sit back and wait for the next land boom, which may not come for another generation or two.
I just don't get your fascination with farmland. Historically, stocks have provided a much higher return.
Oh yes, I'm also the guy that harps on all your behavioral investing biases :)
Just to add to my 1:09 post. The point of the story of land speculators coming to town to snap up farm land was that they were the "smart money" guys...the same sorts you would be relying on in a publicly traded company.
They ain't that smart
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