The Agricultural Investment You Need to Make Right Now
The appeal of farmland as an investment is pretty clear in a market in which clarity on anything is hard to find. It starts with one basic premise: The global population is expected to reach 8 billion by 2030. There are certain inevitable outcomes we can take from this. The most reliable is that we’ll need to produce a lot more food.
Though not original, I don’t think the market quite realizes the challenge involved in feeding all those mouths. Now, I’m not saying we face mass starvation. I’m not saying it can’t be done. I am only saying there are challenges and constraints more acute now than in the past. And these constraints make for an appealing investment idea.
First, let me sum up the size of the demand. There are a lot of ways to present the same data. The most arresting is perhaps from the USDA projections. These show that the incremental acreage required to feed this population by 2030 is about equal to the planted acreage in the U.S., Brazil and Argentina!
That’s a lot of acreage and a good reason to own farmland as an investment over the long haul. Arable land per person — which includes both land under cultivation and land that could be farmed — is a dwindling resource, as the nearby chart shows.
One other added wrinkle is that so many countries have biofuel mandates. That means the governments of the world are basically forcing industry to burn food to make energy. This is a major force in the markets. For example, just in the U.S., about one quarter of the corn harvested winds up in an ethanol plant.
All of this simply means we need to get more out of every acre. This gives a nice tail wind to the companies that work up and down the agricultural chain — from irrigation equipment to fertilizers.
One of the best and safest ways to participate in the broad global agri-boom is to own shares of an emerging grain powerhouse right here in the U.S. Remarkably, recent events have pushed the stock price all the way down. The market has handed us a gift, and let me tell you why.
The market is focusing on near-term earnings weakness as a number of investment banking firms have ratcheted down their earnings projects for this year. At the current quote, the stock trades for about 11–13 times this year’s earnings.
However, I look at this stock very differently. I’m not focused on the quarter-to-quarter earnings swings. I am interested in the larger story of how it’s building a global grain powerhouse. Today, it’s expanded its menu of offerings and its geography with significant operations in Australia. It’s invested a lot of capital in building one of the world’s most efficient grain-handling operations, with access to all the important markets, particularly those in Asia.
With its strong balance sheet, low valuation and diversified agri-platform, this company is my favorite low-risk way to play the agricultural markets. The market seems to trade it like a fertilizer stock, but a better comparable is probably Archer Daniels Midland or Bunge. It’s safer than, say, Archer Daniels Midland, a mainstream favorite. And is considerably less leveraged than, Bunge, a popular Brazilian soybean processor.
This company is an absolute buy. I’m expecting its share price to gain 60% by next year. Longer term, I believe the stock has greater potential as the slow, but sure agricultural story unfolds.
Regards,
Chris Mayer
Whiskey & Gunpowder
June 14, 2010
Chris Mayer
Chris Mayer studied finance at the University of Maryland, graduating magna cum laude. He went on to earn his MBA while embarking on a decade-long career in corporate banking. Chris has been quoted over a dozen times by MarketWatch, and has spoken on Forbes on Fox. He has also spoken on CNN Radio, and has made multiple CNBC appearances. Chris is the editor of Capital and Crisis and Mayer's Special Situations, a monthly report that unearths unique and unconventional opportunities in smaller-cap stocks. In 2008, Chris authored Invest Like a Dealmaker: Secrets From a Former Banking Insider.
ShareThis
[...] This post was mentioned on Twitter by Ron Simon and Agora Financial, Whiskey Gunpowder. Whiskey Gunpowder said: The Agricultural Investment You Need to Make Right Now: The appeal of farmland as an investment is pretty clear in… http://bit.ly/ba6riS [...]
To Chris Mayer……….. WHY O WHY DO YOU ALL CONTINUE TO MAKE US CLIENTS READ OF YOUR HEADLINES….SUCH AS ; AG LAND THE STOCK YOU MUST BUY NOW….”"”" SO I READ IT AND READ IT AGAIN AND AS YOU ALL DO………MAKE A CLIENT READ AND YOU DID NOT GIVE US THE NAME OF THE STK………TO BUY, WHY WHY???? DO YOU MAKE US THE CLIENT THAT PAYS YOU MONEY AND YOU WASTE OUR TIME TO READ AND ………..YOU OMIT THE COMPANY NAME,,
IM DISCUSSED WITH ALL OF YOU AND AM CONSIDERING CANCELLING ALL OF MY PAID FOR EXPERTS……. I DO EXPECT YOU TO EMAIL ME BACK RIGHT NOW WITH THE NAME OF THE AG….THAT YOU LED US TO BELIEVE…..SEND TO ME……genewuellner@hotmail.com ,
if i don teceive it iI will cancel all of your big words and no meat……what do we pay for????
genewuellner@hotmail.com
W&G is free. DR is free. The for-pay newsletters offer names and the reasons to buy them. TANSTAAFL.
The trouble with all this need for more food crops is that in the US, the only way is to expand into rangeland and huntin’/fishin’ country–and mine dwindling groundwater sources even faster. That poor old Ogalalla Formation might not last until 2030 at the rate people are sucking on it.
Looks to me like more mechanization would help in various third-world areas, but then you get into maintenance infrastructure for the equipment, along with the fuel needs.
Decreasing, declining spiral. Too many people for the resource base. Sorta like Phoenix or the LA Basin.
Genwuellner: Did you ever hear of a “loss leader?” Have you, in fact, purchased Chris’ newsletter? I haven’t opened my latest from Chris, but at a good guess he gives me the name of the stock, which I don;’t want because I’m a rancher, myself, and I figure that my close personal oversight, interest, and experience give me a better chance, and I can eat what we raise but not fiat currency. Semi-hysterical laughter; while spending enormous amounts of money. In a great year ranching operations expect to clear 4% and eat very well. Last night I contracted for our own hay to be baled at $24 a 5 x 6 round bale, when the closest I can match delivered is $55 bale, but I have to get those bales (which weigh well over a thousand pounds) out of the fields and under cover. Last week we put a thousand dollars’ “worth” of alfalfa (the prince of hay) in the loft for the blooded stock. My youngest hand left a few minutes ago with $200 which will buy chicken scratch, goat pellets, and the “snack” which bribes the cattle herd to come up every day to be inspected for about five days. That won’t cover a week in a time when the pastures are incredibly lush. If city folks had a clue what it costs to raise meat, milk, eggs, and produce–to say nothing of the horrors of ever-increasing regulations and rising taxes, energy costs, and salaries–you’d be surprised anyone eats decently. I have over a million dollars (seriously) tied up in land, machinery, and livestock, and between Cap Gains and finding someplace else to live I’m as tied to my land as a medieval serf. If you can prove you subscribe to even one of Chris’ reports I’ll apologize, but generally letters like yours come from those wanting something for nothing.
That is not to say that I don’t think that Chris’ cattle station/whatever in Australia isn’t a good idea. It is the experience of 60 years telling you that attempting to become a farmer or rancher yourself is not one of the world’s better ideas. The best to be said for ranching is enormous personal satisfaction, a great many (at present) tax writeoffs, and eating only the finest meat, dairy products, and produce. I’m a very big proponent of the Jeffersonian Agrarian Republic, and all but gloat that we have more free time and personal satisfaction than wage slaves can begin to imagine. In a sense every day is a holiday…but we don’t take “vacations” other than to visit our children rarely because someone has to be here to supervise. Sure, if you can afford ten or fifteen acres, chickens, a pair of dairy does and a buck, and perhaps a milk cow and a couple of steers for the freezer later go for it, but don’t think you can compete with Agribiz, because you can’t. You can never produce enough to supply even a small grocery store, and the government won’t let you in any event. I’d love a dairy license so that I can sell milk, butter, and cheese…but it would cost me at least $150,000 to get it. I would never recoup the expense. If Chirs has found an operation in Aussie land that can do better, I’d go for it.
Laughter…you tell ‘em, Desert Rat, dear, and know that there is always a place for you here at the Bar TS, if TEOTWAWKI arrives. Gosh, you aren’t more than about 500 miles away! Bring some La Vencedora vanilla with you if you can come, and know that you’re welcome as a guest any time. Hugs, Linda
i agree with the gentleman above. the headline says the stock we need to buy now, but it is not mentioned. i get a little tired of this and i too think i will cancel . sort of childish way to run an investment service.
david
You stated that you will give us this name in the lead up email and then when I use the link I receive
all the background info and NO STOCK name. Please leave me alone, I do not need any more
aggravation in my life. Especially aggravation that I seem to pay for. I think if you were really that in
tuned with the markets you would make your own money. I share stock / market advice for free.
I make my own money investing. You folks should learn the same.
Sincerely…………Rich .
Actually, the headline read “The Agricultural Investment You Need to Make Right Now”. Personally, I wasn’t expecting to see an actual stock symbol somewhere in this article as a couple of you mentioned, rather, I was hoping to read a coherent story about the agricultural mess we are currently in as a nation.
Hopefully Chris has a better understanding about investment and finance than he does Ag, because it’s fairly obvious that anyone who believes that “we’ll need to get a lot more food out of an acre of land” is ignorant to the type of feedback loops that this current agriculture arrangement is destined for and it’s this type of monoculture, agribiz that has put us in the predicament we are in.
Aaron C, I’ll go along with Chris, up to a point. E.g., a lot of acreage is being developed in Brazil and Argentina, so that means equipment and fertilizer sales. Other countries, I imagine, are upgrading their farming methods for greater output per acre, which again means more sales. The per-acre output in the US is pretty much peaked, so extending into marginal lands is the primary option.
I dunno. Seems pretty obvious. More people = more demand for food = more efforts at producing more food = investment opportunities.
Doesn’t mean I like the idea of more people and less room for huntin’ and fishin’….
Desertrat,
Getting more food from the same 1 acre of ground is a high entropy process that loses in the end period.
In addition to that, it takes nothing more than cheap fossil fuels to keep up pace with that type of activity; petrochemical fertilizers, machinery manufacturing and transportation of produce. Those are just a couple of examples of the process.
After that, it’s just a matter of flipping over the soil enough times to reduce the topsoil from something worthwhile to something insignificant.
Then, when all of the little pesky critters have become tolerant to all of the petrochemical pesticides that the monoculture has created, let Montensanto step and take over the country…wash, rinse, repeat.
Now, for me, calling this an investment opportunity seems pretty freaken sick. I suppose my quarterly statements won’t include photos of the exploited men and women who helped make the dividends possible.
Aaron, it doesn’t matter whether or not you’re correct. The deal is that people in business are going to respond to an increasing demand for food. Period. Production methodology may be absolutely wrong over the long haul, but that doesn’t mean it won’t be used. So, from a $$$ standpoint, that’s where the profits will be.
The concept of “exploited men and women” is purely in the eye of the beholder. Assuming the farmer gets a fair return for his investment and labor, he’s not exploited in any derogatory meaning of the term. Those who have food to eat which otherwise would not be available will be quite pleased.
Back in my young and stupid years I went through a spell of poor and hungry. Total suction, that. But I got over it…
(This may show up as a dupe; I tried earlier to respond.)
Aaron, it doesn’t matter if you’re correct about the methodology. It’s gonna get used, regardless. Folks are going to invest where there is expanded business activity. Economics 101 about demand and efforts to meet that demand.
Who’s exploited? The folks making a living by producing food?
‘Rat
‘Rat,
You’re exactly right! There will be investments where there is growth. But therein lies the conundrum: We live in an economy that has to grow. If it recedes or depresses, people go hungry. Eventually, the growth of population, growth of the economy and the demands placed on the natural resources will exceed the capacity to produce more from that same 1 acre of land.
I’m talking about entropy and feedback loops. You can only remove so much of the so called inefficiency of the natural state of 1 acre of land before it becomes totally useless. At that point, the locals who owned this land will be the exploited. The same ones making a living by producing the food.
One thing which is quite well known to ranchers and outdoorsmen is “carrying capacity” of an ecosystem. There’s a limit to how many head of livestock a pasture will support, and at some point supplemental feeding is needed..
I’ve been saying for years that this old mudball that we live on is over-goated. But, absent a serious amount of euthanasia, about all that can be done is produce more food.
So, really, the choice is either watch folks make money from meeting a demand, or sit back and observe and not make money. I don’t always like the way things are done in this world, but it’s the only world I have. And it’s a lot more fun with jingle in my jeans…
‘Rat
What better investment could there be than knowing how to grow your own food?
Guys…the stock is…presumably Viterra?
I miss all the good parties. Well, at least I never seem to get to exploit anyone, and (in theory at least) I’m willing to do so, particularly if they are far enough away so that I don’t have to know them or watch them suffer. My friends know that is perilously close to a giant fib, because one of the odd things that sort of evolved here on the ranch is a small (three lot) trailer park…beautiful rural surroundings, paved road with school bus, private dock for fishing in one of our lakes, and little Mrs. Meanie can’t bring herself to raise their rent, which remains half what it would cost for a tiny, cramped lot in town, and we provide water and sewage services too. Which only shows circumstances alter cases. Our tenants have been there for years, they take care of the place, they don’t cause any trouble, and two hundred bucks a month means a lot more to them than it does to me. Intellectually I may disapprove of such sloppy sentimentality, but I have to live with myself. I suspect I might not ask any awkward questions if I owned an interest in a rubber plantation or rice paddies, so long as all anyone who didn’t like working there was say “I quit.” In times of high unemployment, particularly in third world countries, a lot of the “oppressed” are have jobs, and a dollar goes a lot farther. In an ideal world neat little gardens would plant and tend themselves, no cows would ever lose their calves, and Indians would eat cows. This isn’t an ideal world. Live with it and look after yourself, your family, your extended family, and your workers. For one thing, it is good business.
Here we go again, Agronomy 101. No, land is not a bank account you can make withdrawals from forever without making deposits, but the solution is not chemical fertilizers (okay for occasional supplementation, at best) but symbiotic farming. What you need is a small plot of land sufficient to raise a garden and at least a few of several types of animals. The cows, goats, chickens, and pigs all eat different things, and better yet they help control the parasites that plague the others. The best way to start is to lease land, because the stuff is very pricy. You can rent for about $40/acre what it would cost $5,000 to buy. Let the animals roam free during the day, but bring them up at night to check on them, keep them safe, and because they will then be kind enough to defecate all over next year’s garden plot. (Well, you might want to pen the pigs because they stink. The others don’t.) In off years plant a nitrogen-fixing legume to enrich the soil and provide extra forage. Make your own compost from just about any sort of green or brown plant material. VERY carefully burn off a section once in a while because, to your astonishment, the soil likes that. Yes, your little bucolic paradise is labor constant, although not all that labor intensive. The goats or cow want to be milked at least once/day 300 days a year, and will produce so much you’ll end up feeding extra to cows, dogs, goats and chickens, all of whom dote on it. You can make your own cheese. Everything costs something, either money or work or both. Instead of brooding, take care of your own needs. You CANNOT compete with agribiz. It costs too much, the government won’t let you, and you would have to expand to the point where it wouldn’t be any fun any more. You CAN still supplement your own food supply while getting to the point where you are pretty self-sufficient. Look to the past for techniques and reasons. Ask an oldtimer how horrible rationing is before you say that DIY is “too much trouble.”
It’s quite as the grave around here except for us.
quiet, of course