Nov 15 Where there's muck, there's money, the
old expression goes.
With 7 billion people now needing food on this planet,
putting your money into soil and agriculture might be a
long-term investment to consider. You'd certainly be in good
company: In recent years, high-profile investors such as Jim
Rogers and George Soros have made investments in farmland (see).
What makes farm property attractive? It has a finite supply
and may become even scarcer with global warming,
desertification and development. And with a rising population,
more tillable land will be needed.
Moreover, it could be a way to diversify your portfolio
away from financial markets wracked by global debt fears. Gold
has been one alternative, but farmland could be a better
long-term bet. Unlike precious metals, you can rent it out and
use it to grow crops or feed livestock.
Although depressed somewhat by the economy's recent
weakness, U.S. agricultural real estate prices have climbed 40
percent since 2004, according to the U.S. Department of
Recent spikes in commodity prices have given a new lift to
farm prices. Interest rates have also been relatively low,
which tends to boost most commodity prices. And when there are
weather-linked problems in major agricultural zones such as the
American Midwest or Russia's grain belt, supply-related price
increases often follow.
Buying individual parcels of prime agricultural land is
difficult for most people. You have to know how productive that
land has been, the cost per acre and the equivalent cost to
rent it out. History offers a plethora of boom and bust cycles,
and land owners need to be long-term investors to hang on
through the dips.
For most investors, funds that invest in agricultural
commodities and the farm business funds are a good way to get
limited exposure and liquid enough to sell easily. They do not
give a perfect correlation to land prices, but they do tend to
shadow farmland prices. These exchange-traded funds (ETFs) can
help you make targeted investments in agriculture and related
industries, and with a relatively small investment.
The funds do not invest directly in farmland, but they
offer a way to put some agri-dollars into a diversified
portfolios. Here are a few:
-- Market Vectors Agribusiness ETF . This
exchange-traded fund invests in a basket of companies that
derive at least 50 percent of their business from agriculture.
-- PowerShares DB Agriculture ETF . By investing in
an index that reflects the performance of agricultural
commodities -- and futures contracts that represent them -- you
can diversify your portfolio with this fund. The farm economy,
of course, directly tracks the prices of key commodities.
-- Global X Farming ETF .This fund follows the
price and yield of a farming index. It is based on performance
of a diverse list of global companies in farming and farm
There's always a solid reason to be cautious with these
sector-oriented ETFs. They are subject to stock, interest-rate,
commodity, country and now climate-change risk. If interest
rates rise, commodities can move in the opposite direction.
Land prices can easily crash without any warning and sometimes
for reasons related more to finance and cash availability than
You also need to be aware that the more investors who buy
into agriculture, the greater likelihood that a price bubble
will form. Midwestern cropland values soared some 20 percent in
the fourth quarter of 2010 alone, reports the Kansas City
Federal Reserve Bank (see). Lofty returns
tend to attract more investors hoping to reap similar
performance. In a short period of time, these badly kept
secrets feed speculative buying.
Even though farmland is becoming more valuable, you
shouldn't confuse investing in it with owning a government
bond. The only thing guaranteed in agriculture is uncertainty
The author is a Reuters contributor. The opinions expressed
are his own.