Best of the Week
Most Popular
1.How U.S. Dollar Destruction Threatens the Global Economy - Steve Forbes
2.Why UK House Prices Will Continue Rising - 'It's Immigration Stupid' - Nadeem_Walayat
3. Bitcoin Price at Beginning of a Move up? - Mike_McAra
4.Gold Price to Plunge, Visiting Fort Knox - David_Hague
5.Silver Price Forecast - Metal to Gain Ground in August on These Factors - Jim Bach
6.Gold And Silver Will Rise With US Dollar Demise, Just Not Soon - Michael_Noonan
7.Bitcoin Price Strong Move Possible - Mike_McAra
8.Israel Gaza War Crimes - Soldier's Ordered to Shoot Civilians Including Children - C4News - C4News
9.UK House Prices Crash Warning - Daily Mail Cognitive Dissonance - Nadeem_Walayat
10.UK House Prices Boom - Top Quick Cheap Tips to Help Sell Your Home - Nadeem_Walayat
Last 5 days
The US Gold in Fort Knox is Secure, Gone, or Irrelevant? - 19th Aug 14
Bitcoin Price On The Brink of a Possible Reversal - 19th Aug 14
Why Tesla Stock Price Will Double in the Next 12 Months - 19th Aug 14
Europe's Economic Malaise: The New Normal? - 19th Aug 14
The Coming U.S. Economic Collapse Will Trigger a Revolution - 19th Aug 14
Market Bubbles, Bubbles Everywhere - 19th Aug 14
This is Your Economic Recovery With and Without Drugs - 19th Aug 14
Stock Market Strong Start to Jackson Hole Week - 19th Aug 14
Iraq, Ukraine - Oh, What A Tangled Mess We Weave - 19th Aug 14
How to Apply Moving Averages as a Trading Tool - Video - 18th Aug 14
Why Short Stock Traders Are Losing Money This Week - 18th Aug 14
Stock Market Rally May be Complete - 18th Aug 14
Why Chinese Citizens Invest In Gold - 18th Aug 14
Palladium Reaches 13-Year High Over $900 oz as Gold Trading Volumes Surge 66% - 18th Aug 14
Understand and Profit from Surging European Volatility - 18th Aug 14
No Escape from The Dollar as The Currency Standard - 18th Aug 14
Stock Market New Highs Less Certain - 18th Aug 14
German Stock Market DAX About To Drop - 18th Aug 14
Stay on Board - Stock Market Big Picture - 18th Aug 14
Europe Economy Is Tanking, QE Is Coming - 18th Aug 14
Are You Ready for The Greatest Technology Revolution Yet? - 17th Aug 14
Why King Coal is Bigger than Oil or Gas - 17th Aug 14
U.S. Empire of Death and Lies - 17th Aug 14
Ukraine - Whose Spin Are We Caught Up In Here? - 17th Aug 14
Time Decay And No Escape For Abenomics - 17th Aug 14
India BSE SENSEX The Party Is Over In Bombay - 17th Aug 14
Stock Market Uptrend Looks Underway - 17th Aug 14
The Key Role Of Conspiracy Theory In Dumbing Down Society - 17th Aug 14
The Federal Reserve in Denial Mode - Bond Market Explained - 17th Aug 14
Stock Market Ukraine-Triggered Volatility, But a Flat Finish - 16th Aug 14
Stock Market Investors Conditioned To Catch The Falling Knife - 16th Aug 14
Decline And Fall Of The CO2 Crisis - 16th Aug 14
Gold Stocks Major New Upleg - 15th Aug 14
Don’t Assume What Is “Unseen” Doesn’t Exist - 15th Aug 14
HUI, Gold and Silver; Fun With Monthly Charts - 15th Aug 14
Cry for Argentina: Fiscal Mismanagement or Pillage? - 15th Aug 14
New 'LBMA Silver Price' - Still Not Transparent - 15th Aug 14
America the Neighborhood Bully Recklessly Throws its Weight Around - 15th Aug 14
The Single Best Investment for the Semiconductor Tek Stock Boom - 15th Aug 14
The Something For Nothing Society - Inflation and Getting Paid NOT to Work - 15th Aug 14
Forecasting Ability of the Elliott Wave Principle - Trader Education - 15th Aug 14
The Most Hated Stocks Bull Market - 15th Aug 14 - Puru_Saxena
America's First Oil Sands Producer and Other Natural Resources Surprises - 15th Aug 14
Life and Times in Propagandistan - 15th Aug 14
The Biggest Lesson from Microsoft’s Recent Battle with the US Government - 15th Aug 14
Russian Bear Rattles Stock Markets, but Plunge Protection Team Rides to the Rescue - 14th Aug 14
Back In Iraq: We Only Want To Save You - 14th Aug 14
Learn How to Spot High Confidence Chart Trade Setups for FREE! - 14th Aug 14
More Bad News is Good News for the Stocks Bulls - 14th Aug 14
If Mr. Rogers Ruled Wall Street - 14th Aug 14
Government Spending and Negative Interest Rates - 14th Aug 14
Gold, Silver, Dow and VIX Market Updates - 14th Aug 14
Don't Get Ruined by These 10 Popular Investment Myths - 14th Aug 14
Gold and Silver Miners that Can Make Money Now - 14th Aug 14
Low and Expanding Risk Premiums Are the Root of Abrupt Stock Market Losses - 13th Aug 14
Stock Market at the Precipice - 13th Aug 14
When Gold Miners Have Already Rallied – Will Metals Follow? - 13th Aug 14
Oil Market QE Premium Is Coming out of Price - 13th Aug 14
Putin is Winning the New Cold War - 13th Aug 14
No Silver Money For Mexico, But Perhaps Gold For Eurasia - 13th Aug 14 -
Japan Economic Collapse - GDP Plunges by 6.8%! - 13th Aug 14
Confusion To New “London Silver Price” Launch This Friday - 13th Aug 14
Interest Rate Policy Global Divergence - Really? - 13th Aug 14
Stock Market Two-Day Rally Ends with a Small Loss - 13th Aug 14
Resources Stocks Where to Stash Your Money When Europe Heats Up? - 13th Aug 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

The Shortage of Arable Land and the Case for Agriculture and Farmland Investing

Commodities / Farm Land May 14, 2012 - 05:38 AM GMT

By: Submissions

Commodities Best Financial Markets Analysis ArticleAdam Waldman writes: Whilst farmland investing may seem to some to be a bit of an exotic option, the reality is that there is an increasingly compelling case for adding this asset class to the alternative investments bucket of your portfolio.  One of the major reasons for our bullishness on farmland investment is the availability of quality farmland. As the graph below from the UN Food and Agriculture Organization (FAO) clearly demonstrates, the amount of arable farmland has already shrunk and will continue to do so.


China has actually been a particular victim of this trend.  To take a more specific example of this trend. China currently contains 20pc of the world’s population, but only 7pc of its arable farmland. Unfortunately for the Chinese, China has already been losing arable farmland at an alarming rate. According to this article from the English language China Daily, the amount of arable farmland in China has fallen sharply.

“Acute shortages of reserve farmland and water resources are now the main restraints for the country to ensure its food security, Zhang Ping, minister of the National Development and Reform Commission, said on Thursday while making a report to the top legislature.

“The cultivable land in the country sharply decreased from 130.04 million hectares in 1996 to 121.72 million hectares in 2008 due to rapid urbanization and natural disasters, figures from the National Bureau of Statistics show.

“Also, the current per capita cultivated farmland is about 0.092 hectares, which is only about 40 percent of the global average. Less than 4.7 million hectares in the country can be considered reserve farmland, Zhang told the legislature.”

According to a report from agricultural consultancy Colvin and Co., the Chinese government estimates they need to maintain 120 million hectares for crop production until 2020 in order to be self-sufficient in grain production.  Bank of America estimates that China’s arable land has already fallen below the 120 million hectare threshold and could decrease to 117 million hectares by 2015.

Already, China is becoming a net importer of food.  According to a report from the US Grains Council, China will import some 1.7 million tons of corn this year, 5.8 million tons next year and as much as 15 million tons in 2014-2015.

The point here is not to overwhelm the reader with facts and figures about China, but to have investors think about the big picture.  With US$3.1 trillion of reserves, when China wants or needs something, it goes out and buys it.  Food and farmland are no exception.  China has already been eyeing farmland purchases in a variety of countries and regions, and has been looking particularly closely at Africa farmland.

How to play the Chinese agricultural interest in purchasing farmland as well as the broader macro-economic perspective of shrinking arable farmland globally? Simple economic principles of supply and demand dictate that when there is an increasing shortage of an asset combined with growing demand for it, the prices of that asset are likely to go up.  Hence, direct ownership of farmland in locations such as Africa – which is now increasingly possible for individuals – is certainly one option.  Sub-Saharan Africa holds 60% of the world’s remaining uncultivated land suitable for farming and has seen a particular surge of interest from both Chinese state owned companies as well as Persian Gulf Sovereign wealth funds, reflecting these nations' concerns for their food security.  Private equity and hedge funds are also diversifying into farmland investments in Africa.

The second option is to own agricultural stocks, especially in the fertilizer sector, as fertilizer will be crucial to obtaining the greatest yields from shrinking agricultural land.  For example, Yara of Norway (Norway:YAR), which is one of the world’s largest producers of nitrogen fertiliser and has an excellent distribution network. For those interested in organic food, which is increasingly an important sub-sector of agriculture, Cranswick (CWK) of the UK is an excellent fit.  

Finally, the third option is also the option of investing in commodities futures ETFs that track the prices of different commodities in the agriculture sector, for which there are many different options available.
If we had to choose, the purest exposure to the agricultural land theme is farmland investment itself, although many agriculture stocks also capture this trend reasonably well.  We are probably somewhat less enamored of the third option as direct commodity prices are increasingly move up and down based on short-term speculation by hedge funds and other large investors.

Any way one chooses to invest in agriculture, however, will quickly find that upon studying the sector that the shrinkage of cultivatable farmland is a clear global macro-trend worth following.

Adam Waldman is the Marketing Director at GreenWorld BVI.  GreenWorld specializes in real asset alternative investments such farmland and forestry.   All of GreenWorld’s investments have low enough minimums that they are accessible by individual investors.  The aim is to allow retail investors to access such stable, "hard asset" alternative investments that pay high current income and also offer excellent opportunity of long-term capital gains.

By Adam Waldman

http://www.greenworldbvi.com/

Copyright © 2012 Adam Waldman - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014