Wall Street Eyes Farmland Again

Marcia Zarley Taylor – Progressive Farmer

In a New York City ballroom where actor Michael Douglas gave his iconic “Greed is good” speech in the movie “Wall Street,” 400 pension and fund managers, investment bankers and some of the world’s largest farmers gathered to discuss the latest hot prospect: farmland.

The “Who’s Who” of Wall Street financiers now interested in channeling billions of new dollars into cropland ownership in the United States, South America, Eastern Europe and even Africa include heavy hitters like UBS, Franklin Templeton, .

Morgan Stanley, TIAA-CREF, Rabobank and John Hancock.

Pension fund TIAA-CREF has $2 billion invested in farmland, but has intentions to double its holdings.

Underlying the investment frenzy is the expectation that food demand will double by 2050 and skepticism that agribusiness can engineer higher yields to meet that demand. The need for greater soybean production is especially acute as China and India work to improve their diets.

Given this outlook, 125 million to 200 million new acres may need to be brought into cultivation, High Quest Partners, a consulting group that sponsored the investor.

conference, estimates.

“People really do believe agriculture is headed for a super cycle,” says Kenneth Van ‘Heel, global director of Dow Chemical’s pension fund, which is stepping up its land investments, primarily in the United States. “Across the industry there are so many investments to be made.” Many of the would-be farmland ‘ owners are no neophytes to U.S. or global agriculture.

Gary Taylor, former president of Cargill Cotton, spent 38 years immersed in the commodities business worldwide and already owns 7,000 acres in his personal portfolio. Now he and a partner have launched a farm real estate investment firm to purchase farmland in the Mississippi River watershed.

They favor corn, soybean, cotton and rice land with good access to water and the benefit of Mississippi River basis for the best market prices.

People Really Do Thing Agriculture is Headed For a Supercycle

With what he knows about growing world trade in agriculture, Taylor expects u.s. farmland prices to ,doub le in the next five years.

scale are ineligible for u.s. farm programs. What’s more, North Dakota, Minnesota and Iowa outlaw corporate ownership of farms.

What gives institutions hope is that Nebraska’s anti-corporatefarming law was recently overturned by the state Supreme Court, and they believe other states could lose if challenged.

In the European Union, there To date, most investment is being steered to locales outside Europe and North America where land costs less.

But foreign control of land is controversial. News that a South Korean firm wanted to farm 3.25 million acres in Madagascar in 2008 led to riots, 130 deaths and the fall of its government. Brazil’s president is now expressing concern about foreign ownership of its farmland.

To keep the phenomenon in check, the World Bank and United Nations are trying to develop ethical standards for investors in developing countries. “It’s like the California gold rush. The initial investors are not the most savory characters in the world,” says John Lamb, World Bank agribusiness team leader.

Insurance· companies and pension funds romanced U.S. farmland in the 1970s, only to exit when land prices cratered in the 1980s.

This time is different because interest is global. Brazil is attracting corporate-style farming with firms traded on stock markets;· and the former Soviet Union and Eastern European bloc offer a frontier for private investment that didn’t eXIst during agriculture’s last golden age.

One constraint on investorsbut not present for operators in the U.S.-is that investors of this are no eligibility or payment limits on farm subsidies, so farms like Spearhead International, Europe’s largest farming corporation with 150,000 acres in the United Kingdom, Poland, Romania and the Czech Republic, can collect EU farm subsidies worth about $90 per acre annually.

“We’ve waited 40 years for something like this,”. says an Iowa farm manager. But he doubts outsiders will hike U.S. farmland values as high as some expect, since institutions need cash returns of about 5% and rarely can afford to outbid established farm operators in prime Grain Belt locations.

Farmers still buy and own the vast majority of America’s farmland, he notes. Institutions like to step in to buy only when there aren’t two bidders at an auction.

“Maybe they’ll just keep land from the price correction everyone in agriculture’s been expecting,” he says.

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