Farmland investment products coming soon?

[Fishhead24]

This is a great idea if these are implemented by bankers and brokers in the near future.......and gives everyone a chance to invest in this market that cannot afford to buy a large amount of acres or an entire farm........

August 1st, 2007
Des Moines Register

For those with less money to invest, the choices for participating in the farmland boom have been slim. If they already own land but don’t farm it, they can turn to a bank like JPMorgan Chase or U.S. Bank to manage their property for a fee. If they have a residence in Canada, they can buy farmland in Saskatchewan through the Agriculture Development Corporation, a private company, for a minimum buy-in of $20,000.

Otherwise, they can invest indirectly in farmland through a commodities-tracking mutual fund like Pimco Commodity RealReturn Strategy or a commodities-based exchange-traded fund like Powershares DB Agriculture.

Or they can simply follow the lead of Bob Wise, a software developer on Merritt Island, Fla., who concluded that the best way to enjoy farmland appreciation was to buy it directly.

Mr. Wise first bought a parcel of Iowa farmland in 1995 and reports that, between rent and appreciation, the investment has returned 12.5 percent, annualized. Last year, he bought a second Iowa property. Over the years, he had looked for ways to invest in farmland through financial vehicles designed for smaller investors. “I never found one,” he said.

But Wall Street is beginning to see an opportunity in broadening the market for this asset class. UBS AgriVest, a farmland investment subsidiary of UBS, which until recently confined its farmland investment portfolios to larger investors, now has a fund that can accommodate individual investors. But participants must meet the Securities and Exchange Commission’s definition of an “accredited investor,” requiring net worth of at least $1 million or annual earnings of at least $200,000 (or $300,000 when combined with those of a spouse).

Other financial services giants, including JPMorgan, which manages two million acres of farmland for its clients, are considering the creation of farmland investment products. “There’s definitely been talk of that. I have been approached by our investment bank asking about that,” said Steve Wright, Midwest regional manager for JPMorgan’s farm and ranch management unit in Lafayette, Ind.

Jeffrey A. Conrad, president of the Hancock Agricultural Investment Group, said, “Over time we have thought about tapping the retail market,” with offerings for less-affluent investors.

And Mr. Archbold of U.S. Bank said that a farmland investment product “is certainly being talked about now.”

Prices are rising for many types of agricultural land. The Hancock Agricultural Investment Group, for example, has produced a sparkling three-year annualized return of 28.2 percent on its farmland investments. “A lot of the performance,” Mr. Conrad said, “has been driven by almonds and pistachios.” Those nuts have benefited from a relatively weak dollar, which aids exports, and from research suggesting that they may contribute to cardiovascular health.

But Mr. Conrad notes that demand has inspired new plantings of almonds, potentially unbalancing the favorable supply-demand equation. Values of almond and pistachio acreage “could trend downward” he said.

Land that is now attractive, he said, includes property in Wisconsin for growing cranberries and in Washington State for apples.

Relatively low interest rates and improving crop yields have also been factors in farmland’s appreciation. Another was the collapse of other sectors of the real estate market. Many investors in residential and commercial property have taken advantage of a tax provision that allows them to defer capital gains taxes if they exchange one income-producing property for another. In the last few years, with other assets peaking, many property owners have traded to farmland.

In parts of Colorado, Oklahoma, Kansas and Nebraska, drought has blunted the spike in farm values, said Elizabeth Hund, senior vice president of the food and agribusiness group at U.S. Bank in Denver. But in Iowa, Illinois, Minnesota, Wisconsin, Indiana and Ohio, land prices have been rising. Iowa farmland has appreciated for four consecutive years, to new records, with some land now fetching $6,000 or more an acre.

In Illinois, where farmland values have declined in just five years since 1970, land prices are also at record levels. The chief reason — in a word — is corn.

Just before the harvest last fall, corn fetched roughly $2.20 a bushel. In less than six months since, it has nearly doubled in price. Commodity prices are notoriously volatile, but in this case the futures market suggests that corn will not beat a rapid retreat from its new plateau. The October 2008 price for corn is hovering around $3.50 a bushel, and many farmers are selling their corn forward to lock in the higher levels, said Michael Duffy, professor of economics at Iowa State University.

To maximize the benefit of high corn prices, farmers have shifted land from other crops, tightening supply and lifting prices of wheat, oats and soybeans.

How long can all of this last, especially when many analysts say corn will eventually be displaced as the preferred feedstock for ethanol? Professor Duffy says he is confident that land values will hold for five years, but not so confident about the 10-year outlook. “I don’t see the potential for a major disruption in land values over the next five years,” he said.

For one thing, farmers can lock in high corn prices for delivery two years out, helping to stabilize the land’s revenue potential. And he doesn’t expect new sources of cellulosic ethanol — ethanol produced from the cellulose of a variety of plant fibers — to displace corn soon.

But they could in time. Although corn is currently the sole source for ethanol in the United States, the supply of ethanol feedstocks may eventually become “decentralized,” according to Mr. Archbold of U.S. Bank. Potential sources include nonfood crops like grasses and fast-growing trees that can be grown in more marginal soil, as well as plant waste. Universities, start-ups backed by venture capital, and giant oil companies are all engaged in research to find corn’s successor.

Perhaps this explains near-term optimism and long-term concern across the Corn Belt.

“Is this a long-term effect or a short-term effect?” asked Gene Traetow, who runs a real estate and farm management business in Denver, Iowa. “We’re leery it’ll be long term. But we feel for the next two to four years, corn and land prices will be in an upswing.”

[kimchi]

I'm beginning to get the impression you have vested interests in farmland...

[Fishhead24]

kimchi--Yes, certainly do.......but not on a grand scale that many investors/farmers do these days.

As is evidenced by the above article, investing in this area is becoming increasingly more popular, especially over the past 2-3 years, and individuals are trying to find a way to enter this market other than buying farmland outright.

Just read a recent price report, forget the exact source, but stated that good quality farmland in Iowa has increased 16% in the past year for the period ending April 1st.

Considering the current climate surrounding the stock market, one can only think that many investors are beginning to look more at this particular investment to diversify their portfolios.

[Fishhead24]

http://www.phillyburbs.com/pb-dyn/ne...7-1342371.html

[Fishhead24]

Have any of you caught the new commercial from Chevy promoting their flex fuel cars in a cornfield? It aired a few times last night during the telecast of the BOSOX/YANKS.

[Big TR]

I believe that much of the increase in Iowa farmland per acre price over the recent past is due to the ever expanding Chicago market. Tens of thousands of acres of farmland in suburban Chicago has been turned into subdivisions. These farmers were not yet ready to retire, but they wanted to stay in the midwest. Hello Iowa.

With the current slowdown in the housing market, not as many farmers are been displaced. For example, near my home there was a 500 acre subdivision to be built by KB Homes. They did quite a bit of land prep on the site and just walked away from the property last fall, selling it back to the original investment owner.

I can see the price per acre increases slowing down or even decreasing in the near future.

[Fishhead24]

[ QUOTE ]
I believe that much of the increase in Iowa farmland per acre price over the recent past is due to the ever expanding Chicago market. Tens of thousands of acres of farmland in suburban Chicago has been turned into subdivisions. These farmers were not yet ready to retire, but they wanted to stay in the midwest. Hello Iowa.



[/ QUOTE ]

What you are referring to is "urban sprawl" and it certainly does have an impact on rural farmland prices as prime farmland is taken away by this occurrance.

However, in the grand scheme of things it is only one of many factors pushing the rural land market, and believe it to be be far less than a few other factors which consist of but not limited to the following........

1. Commodity prices of wheat, corn, and soybeans
2. Increased consumption for corn ethanol
3. High oil prices
4. Unstable climate in stock market
5. Low interest rates(although the majority of farmland is being paid by cash these days).
6. 1031 tax exchange laws
7. Highly favorable government farm bills

Couple these factors with your "urban sprawl" perception and one can see the reasoning for the current bullish market in this real estate sector.

[Big TR]

That's just it. I don't see that this market can continue to increase at it's current pace.

Suburbia isn't sprawling anymore. The developers/investors have stopped purchasing presently farmed acreage, cutting off a major supply of cash used to buy farmland in more rural areas. Section 1031 exchanges, low interest rates and government subsidies have been around for quite a while, so I do not see these as trend items pointing to bullish futures.

I concede that commodity prices have gone up. This will allow for some increase to the land pricing. I just think it was a perfect storm these last 5-10 years for farmers in rural areas. The main cash driver of that storm, investor/developer money, has left for the foreseeable future.

[Fishhead24]

TR--Developers are not buying as much, but investors are from all over the country and are more than making up for it as evidenced by the first post in this thread.

There were three farms in NC Iowa earlier this month that sold for over $8,000 per acre.

There are some major farm auctions coming up in September that will give a great indication of how bullish this bullish market is..........it appears it may be even more bullish than I even imagined.