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Farmland Investments: A Unique Asset Class

Billionaire investment professionals believe farmland is only in the early-to-middle innings of a major "super cycle" of increasing prices.

(Source: technorati.com, 28 Nov 2011)

Many investment professionals, including the legendary investors Jim Rogers and George Soros, believe agriculture commodities are only in the early-to-middle innings of a major "super cycle" of increasing prices. Both Rogers and Soros are billionaire investors who have had tremendous success over the years in up-markets as well as down markets, so when they speak it is well worth listening to both of them.

Currently, both Soros and Rogers are extremely bullish on farmland investments. In our view, the arguments for farmland investment as an asset class are extremely compelling. First, the number of people in the world just passed seven billion, and the United Nations projects that the population will reach nine billion by 2050. Meanwhile, emerging markets nations such as China and India are becoming richer and their citizens are increasingly demanding a more varied diet. Meanwhile, the amount of arable farmland globally has been decreasing due to development as farmland is wiped out by new property and industrial developments. Global warming is expected to hasten this trend over the following decades.

The second reason why farmland is a compelling investment is that as a “hard asset” it offers an excellent hedge against inflation. Poor economic conditions in western countries continue to drag-on, whilst the ongoing crisis in the Eurozone greatly increases the risk of a Lehman-style meltdown. Central banks in the West – particularly in the UK and the US – have already printed huge amounts of money in a process called “Quantitative Easing” (or QE as it is commonly referred to) attempts to inject money into flailing economies, and it is highly likely that more easing by central banks could be on the way. This process of QE greatly raises the risk of inflation down the road, and farmland investments can offer a strong hedge against this possibility.

Finally, farmland investments are uncorrelated to either global stock markets or bond markets. The returns from farmland investments are affected by completely different factors than those that influence the performance of stocks and bonds.

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