Agriculture Investing

Written By Nick Hodge

Posted September 28, 2011

Having spent a great deal of my childhood at my grandparents’ farm, and then moving there permanently at age 13, I have a special affinity for agriculture.

Sure, I’m a hunter and fisherman. But it isn’t just that…

There’s something to be said about working with your hands in this day and age. It’s a special feeling to plant something and watch it grow — a sense of production, a sense of accomplishment, a sense of real value.

And at the end of the day — for all the stocks and funds I’ve traded in countless industries — when I sit down and ponder true wealth, I always come back to one idea: land.

Land can give you everything you need and more.

Try eating, drinking, or making shelter out of paper stocks or gold.

Billionaires know this all too well.

They’ve been on a land-buying spree for the past few years. It’s high time you joined them.

I know most of you can’t just plop down a couple hundred thousand or more on a few choice tracts, though, so today I’ll pass on a few ways to invest in agriculture via an interview I recently had with my publisher.

EAC: Why is agriculture becoming an investment hot spot?

Nick: Growing population and resource constraints, plain and simple. There were one billion people on the planet in 1800. Today, we’re about to break 7 billion. And the amount of land we have stays the same.

We’ve increased crop yields through technology, to be sure: fertilizer, irrigation, advanced equipment, and seed genetics have come a long way, thanks in part to cheap energy. But they’ll have to keep improving to feed an exploding global population…

And that’s precisely where the money will be made.

EAC: Is this a problem or an opportunity?

Nick: The two are synonymous, aren’t they?

The data is daunting, for sure. A Stanford University report tells us “half the world’s population faces major food crisis by 2100.”

And with continued development and urbanization, there’s less and less land to feed more and more people. Bloomberg reports “about 5 million to 8 million hectares of the world’s total of 1.5 billion (3.7 billion acres) of farmland goes fallow each year because of deteriorating quality.”

But it isn’t just land. Water’s a problem, too.

The American Association for the Advancement of Science has found “the groundwater that provides 31% of the water used in agriculture is being depleted up to 160% faster than its recharge rate. The vast U.S. Ogallala Aquifer (under Nebraska, Oklahoma, and Texas) will likely become non-productive within the next 40 years.”

The rest of the world faces similar water issues.

So it’s definitely a looming problem.

As humans innovate and overcome as they always have, however, this problem will be transformed into a massive investment opportunity.

EAC: What’s the most obvious way to play it?

Nick: Land. Own land.

Arable land is already greatly increasing in value, even as home values continue to plummet. One Google search revealed farmland in Ohio is selling for as much as $6,000 per acre, up from $3,500 an acre just 18 months ago. That’s almost a 75% increase in eighteen months.

How have your stocks been doing?

The story is the same in most locales with fertile soil.


EAC: And if you don’t have the income or savings to buy several acres or more?

Nick: That’s ok, there are still plenty of ways to invest in agriculture.

Plays like the Texas Pacific Land Trust (NYSE: TPL) and others allow you to invest in land without owning it. You can also buy a company that owns large amounts of land as part of its overall agriculture business. Archer Daniels Midland (NYSE: ADM) and Cresud (NYSE: CRESY) are two to watch there.

EAC: What about non-land ways to get in on the ag game?

Nick: There are plenty. From seed to harvest, there’s virtually no limit to the ways you can play the agriculture business, many of which are probably already familiar to you.

The obvious one is Monsanto (NYSE: MON), which, for better or worse, is dominating the genetically modified (GMO) seed scene.

To make those seeds grow and produce the maximum yield possible, copious amounts of fertilizer are also needed. That’s the reason companies like Potash (NYSE: POT) and Mosaic (NYSE: MOS) have been such hot commodities.

From there, you’ll want to start looking at the companies providing the machinery and logistics to feed a growing world in a resource-constrained environment…

The list is long, but you’ll want to check out Bunge (NYSE: BG) and stalwart equipment companies like Caterpillar (NYSE: CAT) and Deere (NYSE: DE).

I’d be remiss if I didn’t mention one of my favorite stocks here, Lindsay Corp. (NYSE: LNN). It makes efficient irrigation equipment to help farmers get the most per acre with the least amount of water.

EAC: Last question, and then we’ll let you off the hook…

Can you pass along any funds that retail investors can use to play this sector?

Nick: Again, the list is long…

The Market Vectors Agriculture ETF (NYSE: MOO) holds many of the companies I’ve already mentioned.

To play the commodity angle, you’ll want to look at the PowerShares DB Agriculture Fund (NYSE: DBA), which holds a basket of soft commodities.

And if you’re feeling especially bold and confident, you can take a look at the double-leveraged ETFs, like the PowerShares DB Agriculture Double Long (NYSE: DAG).

But for my money, the answer is land.

I’ve been yearning after a few acres of my own for years and am angling toward making that a reality in short order.

Call it like you see it,

Nick Hodge

Nick Hodge
Editor, Energy and Capital

P.S. I’m currently en route back home to Baltimore from a helicopter tour of the Fort McMurray oil sands and adjacent properties. I have plenty of footage, pictures, and insight that I’m excited to share with you upon my return. Stay tuned.

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