Farmland Investing: Arable Land Is No Longer Dirt-Cheap
Preparing for Armageddon/the Rapture/World War III/the Zombie Apocalypse? Here is an investment idea to add to your survival kit: Farmland.
Similar to other scarce and tangible resources, like gold and water, farmland is seen as a safe investment in times of financial uncertainty. Mamta Badkar and Joe Weisenthal of Business Insider call it "the ultimate crisis hedge" because of the unrivaled importance of food. And Barton Biggs of Morgan Stanley believes that stocking up on the basic necessities, especially food, is necessary for one's "doomsday safe-haven" (via Business Insider).
Whether or not modern society collapses over the next several decades, it is certain that the rapidly expanding global population will put upward pressure on food prices.
"Over the next 40 years, the population of the world is projected to grow from 6 billion to 9 billion, hugely increasing the strain on arable farmland worldwide," according to MoneyNews.com. "I'm convinced that farmland is going to be one of the best investments of our time," said Jim Rogers, legendary investor and George Soros partner (via ContrarianProfits.com).
Farmland can generate 3% to 5% in annual rental income in addition to around 5% annual appreciation in the value of the land, according to Jilian Mincer of The Wall Street Journal.
"Since the recession began in December 2007, financial analysts say, agricultural investments have easily outperformed the Standard & Poor's 500 index," reports P.J. Huffstutter of the Los Angeles Times.
Investing directly in farmland is becoming increasingly difficult, however.
"The number of high-quality farms offered on the market is down 30% to 40% ... Even medium-quality land is 20% to 30% less available for purchase," says Loyd Brown of Hertz Farm Management (via The Wall Street Journal).
An alternative to buying land is to invest in companies that benefit from the appreciation of and rental income from farmland. To help you seek out the ideal farmland investments, here is a list of companies that purchase and manage farmland.
List sorted by market cap. (Click here to access free, interactive tools to analyze these ideas.)
1. BG (NYS: BG) : Farm Products industry with a market cap of $10.13B. It is a global agribusiness and food company operating in the farm-to-consumer food chain. The Company conducts its business in four divisions: agribusiness, sugar and bioenergy, food and ingredients and fertilizer. As of December 31, 2010, the overall sugarcane plantations consisted of approximately 157,000 hectares, including both owned and leased land.
2. AGRO (NAS: AGRO) : Farm Products industry with a market cap of $1.36B. It is engaged in three businesses: farming business; sugar, ethanol and energy business, and land transformation business. It is an owner of productive farmland in South America. As of September 30, 2010, it owned 274,663 hectares of farmland in Argentina, Brazil, and Uruguay, of which 121,723 hectares are croppable, 18,909 hectares are being evaluated for transformation, 79,645 hectares are suitable for raising beef cattle and leased to a third-party beef processor, constituting a total of 220,277 productive hectares, and 54,387 hectares are legal land reserves pursuant to local regulations or other land reserves.
3. CRESY (NAS: CRESY) : Farm Products industry with a market cap of $761.93M. It is an Argentina-based company. It focuses on the acquisition, development and exploitation of agricultural properties prospects for agricultural production. It is directly engaged in the Argentine real estate business through its subsidiary IRSA Inversiones y Representaciones Sociedad Anonima (IRSA). As of June 30, 2010, it owned 24 farms with approximately 473,368 hectares. Approximately 42,008 hectares of the land it owns are used for crop production, approximately 93,222 hectares are for beef cattle production, 100,911 hectares are for sheep production, 4,900 hectares are for milk production and approximately 3,222 hectares are leased to third parties for crop and beef cattle production. The remaining 229,105 hectares of land reserve are natural woodlands. In addition, through its subsidiary Agropecuaria Anta S.A., it has the rights to hold approximately 132,000 hectares of land under concession for a 35-year period.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Disclosure: Kapitall's Andrew Dominguez does not own any of the shares mentioned above. Data sourced from Finviz and Reuters.
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