Farmland from Iowa to Argentina is rising faster in price than apartments in Manhattan and London for the first time in 30 years.
Demand for corn used in ethanol increased the value of crop land 16% in Indiana and 35% in Idaho in 2006, government figures show. The price of a Soho loft appreciated only 12%, while a pied-a-terre in Islington near London’s financial district gained 11%, according to realtors.
Farmland returns “will take a quantum leap over the next 18 months,” after corn prices surged to a 10-year high in February, said Murray Wise, the 58-year-old chairman and CEO of Westchester Group Inc. in Champaign, Illinois, who oversees $460 million (Rs2,024 crore) of land investments.
Wise, who was born on a Canadian farm and now manages 85,000 acres, said prices in the US Midwest may gain 12% a year through 2017. Farmland rose in value in 34 of the last 37 years, according to data compiled by UBSAgriVest, a unit of UBS AG, the world’s biggest money manager. The returns are attracting hedge funds and investment brokers.
Hancock Agricultural Investment Group in Boston purchased $100 million of farmland in the past year, increasing its holdings by 13% to $865 million. Macquarie Bank Ltd, Australia’s largest securities firm, plans to spend as much as A$1 billion on ranches in Australia for a new agricultural fund. Pergam Finance, a Paris-based investment company with $1 billion in assets, two years ago started Campos Orientales, a fund that buys farmland in Argentina and Uruguay. The company formed a venture with Bellamar Estancias, owned by Argentina’s Hirsch family, that manages 120,000 hectares and plans to raise $70 million for farmland acquisitions.
In Queensland, Australia’s biggest cattle-grazing state, land rose by about 10% to between A$500 ($394) and A$550 an acre in 2006, said Dick Allpass, a rural property consultant at Adelaide-based Elders Australia Ltd.
Orders for food and feedstock from China in the last five years helped boost prime Australian farmland by as much as 300%, said Wayne Carlson, general manager for agribusiness at Melbourne-based National Australia Bank Ltd, the nation’s largest lender. “That rise of the last few years is what has made some of these fund managers and investment groups say, ‘why hell, why aren’t we in this?’” Carlson said.
Average US farm prices increased by 15% in 2006, agriculture department data show. The cost of buying corn farms in Argentina, the world’s second-largest exporter of the grain, jumped 27%, says Buenos Aires industry newsletter Margenes Agropecuarios.
Marc Faber, a Hong Kong-based investor who manages about $300 million, says one of his favourite stocks is Cresud SA, a landowner in Argentina’s Pampas region. The shares jumped 63% last year.
Farmland is “very inexpensive in a world of inflated asset prices,” he said in an interview on 4 February from Bermuda.
The demand for corn used in ethanol got a boost from US President George W. Bush last month, when he urged a fivefold increase in renewable fuels by 2017. To meet Bush’s goal, 12.5 billion bushels (340 million tonnes) of corn would be needed, 19% more than was harvested last year in the US.
“It is not the investor that is pushing up land prices, it is the surge in corn prices from ethanol demand,” said Jim Farrell, CEO at Farmers National Co. in Omaha, which manages almost 1.2 million acres of farmland on 3,700 farms. “Midwest farmland is predicated by the strength or weakness of corn prices.”
Corn futures have jumped 82% on the Chicago Board of Trade in the past year.
The rally is helped by fewer acres available for planting. About 5-8 million hectares of the world’s total of 1.5 billion hectares of farmland goes fallow each year because of deteriorating quality, according to the Worldwatch Institute in Washington. Crop land also is lost because of development and lack of irrigation, the institute said.
“Ethanol is not the only story here—it is just the one getting headlines,” said Jeff Conrad, 45, president and managing director for Hancock Agricultural, a unit of Manulife Financial Corp. “The supply side is the big unknown because we know demand is rising.” Conrad manages 126,000 acres in the US and 7,000 acres of wine grapes and macadamia nuts in Australia.
US farmland declined by 9.6 million acres, or 2.8%, in the two decades ending in 2001, according to the most recent data available from the government.
Jim Rogers, the hedge fund manager who predicted the start of the commodity rally in 1999, said global warming would hinder crops and has advised purchasing farmland for at least a decade.