HardAssetsInvestor

Written by Tom Vulcan  |

July 30, 2008

Agricultural Land

Details

Why the demand for quality agricultural land is firmly underpinned by current global economic conditions.

• Supply-and-demand 101
• New player: sovereign states
• Public vs. private sector investors

 

 

"You can never make any more of it."

                                    -Old Scottish saying

 

THEN

Back then, there was land - lots of land. And it cost practically nothing.

In the early 1880s, my great grandfather, a former French cavalry officer, made the long trek from Roubaix, in Normandy, France, to a new life in the American West.

Finishing his journey at Beaver Creek, a tiny settlement in Montana, just over the border from North Dakota, in 1883, he and his partner established the firm of Grisy & Wibaux, intending to graze there some 10,000 head of cattle.

First filing claims for the two large ranges on Beaver Creek, and then the whole valley, they proceeded to build a ranch house followed by further separate homesteads. The enterprise prospered. While I've not been able to discover exactly how much land they owned (there is one transfer in the records of the Bureau of Land Management dated August 18, 1887 for some 160 acres), I expect the figure was well into the thousands of acres.

Just those 160 acres would be worth between $48,000-$80,000.[1] Maybe even more if they have good water rights.

 

The Grisy & Wibaux Brand - 1883

 

 

NOW

Now, there is considerably less land available. And it's getting expensive; very expensive.

As the world's population grows, so the supply of agricultural land around the globe diminishes. In the U.S. alone, while half of the 2 billion acres of the country's land is working agricultural land, every minute of every day, two acres of farmland are being taken out of production and turned to other uses; in particular, development. Each year, globally, some 12.3 million to 19.7 million acres of farmland, out of a worldwide total of 3.7 billion acres, falls fallow because of "deteriorating quality."

Available, quality, agricultural land is increasingly hard to find. Prices, everywhere, are going up.

By the end of August 2007, the average price of cropland in the U.S. over the prior year had increased some 13%, doubling in the decade from $1,340 an acre in 1998 to $2,700 in 2007.

 

Source: USDA-NASS

 

Farmland values continue to rise. In the Seventh Federal Reserve District (Illinois, Indiana, Iowa, Michigan and Wisconsin - some of the best farmland in the U.S.), the Federal Reserve Bank of Chicago reported that "the year-over-year increase in District [‘good'] farmland values" had "eased to 14 percent in the first quarter of 2008." But that's still 14% - the third-largest such increase since 1980. Cash rental rates have "soared higher this year compared with those in 2007, rising 21 percent."

In the Eleventh Federal Reserve District (Texas, Northern Louisiana and Southern New Mexico), over the same period, the value of dry cropland rose 21.1%, irrigated cropland rose 14% and ranchland 10.8%.

Finally, in the Tenth District (Colorado, Kansas, Nebraska, Oklahoma, Wyoming, the northern half of New Mexico and the western third of Missouri), the percentage rises in the value of similar farmland over the same period have been even steeper.

 

Source: Federal Reserve Bank of Kansas City

 

In Canada, the rise in value of farmland for the six months ending December 31, 2007, was some 7.7%, more than double that for the previous six months.

 

Source: Farm Credit Canada

 

TRANSNATIONAL INVESTMENT

Public Sector

While there have always been, and will continue to be, investors willing to make transnational land purchases, a new category of player is appearing on the field of play: sovereign states seeking to secure food supplies for their countries.

The following are just some of the countries (either in their own right or via private/public companies) that either have already invested in, or have expressed an interest in investing in, agricultural land away from "home."

 

Sovereign State	Have Already Bought/Expressed Interest In
Abu Dhabi	Sudan
Bahrain	Philippines
China	Africa and South America (Brazil)
India	Paraguay and Uruguay
Libya	Ukraine
Saudi Arabia	Thailand and South Africa
UAE	Pakistan, Sudan, Egypt and Yemen