Saturday, June 20, 2009

Corner the frozen concentrated orange juice market

Commodities trading is so 1983. The game these days is farmland. If you believe this, you're in good company along with George Soros, a Rothschild and Jim Rogers.

The fundamentals remain in place for a long-term boom in the prices of everything ag-related. The simplest metric to consider is the amount of farmland per person worldwide: In 1960 there were 1.1 acres of arable farmland per capita globally, according to data from the United Nations. By 2000 that had fallen to 0.6 acre (see chart above, "Precious Acres"). And over the next 40 years the population of the world is projected to grow from 6 billion to 9 billion.
Other forces conspiring to push up the cost of farmland is water scarcity, improving diets in developing countries and climate change, which will raise sea levels and cause more droughts.

Direct farmland investment seems quite difficult. Who among us has the time or skills to understand agriculture and negotiate deals? It's mostly large funds buying up the farmland, and these funds have too high minimum investments for the mass affluent. Fortunately, there is a company called Chess Ag Full Harvest Partners that is trying to become the first farmland-only REIT (Real Estate Investment Trust) in the United States. It's run by a former Nebraskan who was managing a grain elevator at 14 and did stints as a commodities trader and a hedge fund executive. It also seeks to avoid country risk.
her strategy is strictly focused on the U.S. "Yeah, land might be cheap and plentiful in Russia, but if the price of wheat goes up, is your deed going to be honored?" she says by way of explanation. Rather than buy farms in what she calls the "Prada handbag" states of Illinois and Iowa, where land comes at premium prices, she concentrates on less-well-known farming areas. In addition to her home base in Clarksdale, she has an office in South Dakota, and so far the fund has bought land in Arkansas, Kansas, Missouri, and Texas as well as Mississippi.