Funds swoop on farmland as commodities boom

By Santosh Menon and Jane Merriman

LONDON (Reuters) - Investment bankers often aspire to be gentlemen farmers, but now farming could soon become their day job.

Soaring agricultural prices, growing demand for biofuels and the growth of the Chinese and Indian economies are leading top global investment banks to buy farmland in a bid to embrace the physical commodities market.

Investment banks and hedge funds are mopping up vast tracts of agricultural land around the world, hoping to ride the so-called "commodities supercycle" that has lifted prices of everyday agricultural commodities such as wheat, rice, soybeans and corn to record highs.

U.S. investment bank Morgan Stanley (MS.N) has bought several thousand hectares of land in Ukraine, Europe's grain basin.

Morgan Stanley declined to comment, but industry executives say many other big banks are looking at land.

Barclays Capital, the investment bank arm of Barclays (BARC.L), is actively searching.

"We are looking at a lot of opportunities in those sort of things. We are looking across the board. We certainly wouldn't rule it out," said Roger Jones, co-head of commodities at Barclays Capital.

BACK TO THE LAND

Banks are not the only ones going back to the land.

Fund manager BlackRock has a hedge fund that invests in agricultural land. International estate agents Knight Frank is setting up one to buy agricultural land in the UK.

Industry experts say hedge funds have bought thousands of hectares of corn and sugarcane plantations in the United States and Brazil, illustrating how even purely financial players are moving beyond paper markets into real assets.

"Farming is going to be one of the best places to make money in the next 10 years if you know what you are doing," investor and commodities guru Jim Rogers told Reuters in an interview earlier this month.

Investors say the possibility of commodities demand outstripping supply is driving the trend that could intensify given the pace of growth in China and India.

With nearly 2.5 billion people, the two countries are home to nearly a third of the world's population.

As their economies grow, pulling millions out of poverty, this will drive up consumption. China and India could trigger a wave of demand that existing supplies will struggle to meet.