Jim Rogers Shuns Gold for Farmland Investment

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by Jason Jenkins, Investment U Research
Wednesday, August 10, 2011

Jim Rogers is no stranger to Investment U. In May, our Executive Editor, Garrett Baldwin, interviewed the investing legend and got his ideas on everything from a tertiary education bubble to a long-term commodity bull market.

When the world’s major markets find themselves in peril, everyone seeks out a trusted voice of reason – someone who has achieved success over the long haul.

So it shouldn’t be peculiar that the co-founder of the Quantum Fund made some news over the weekend.

Jim Rogers is even more down on the U.S. government than most…

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Jim Rogers’ Three Crucial Observations

Rogers doesn’t believe the market is in shambles due to the downgrade of our rating by Standard & Poor’s or the possibility of a double-dip recession, but because we are the greatest debtor in the history of the world.

What should be taken from Rogers’ statements this weekend are three of his crucial observations:

• He will not be buying stocks. Stocks are going to be, at best, in a trading range for years to come. He compared the current environment to that of the 1970s when equities were problematic.

• Rogers is a value buyer. He stated in 2000 that a “supercycle” commodity bull market had begun. Commodity prices would advance longer than in any previous uptrend. The raw materials surge would be led by gold and silver. Eleven years ago, gold was trading near its low at $252 – the lowest real price in nearly a century. Silver was selling at $4. Eleven years later, it’s up 650 percent.

• Rogers has currently stopped buying gold and silver. He’s not selling because he still believes that gold will hit and surpass $2,000 an ounce sooner rather than later. Rogers went on to elaborate “that gold prices are not in a bubble because not everyone is buying yet.” The question is, if he’s holding gold and silver long but not buying more of it, what is he buying?

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Jim Rogers Loves Buying Undervalued Assets

What Jim Rogers saw in gold and silver over a decade ago, he now sees in agriculture. Agriculture prices are still, on a historic basis, extremely depressed, and this is where he sees his next opportunity. Rogers thinks that the current commodities supercycle will last for 20 to 25 years. So if this commodity bull started in 1999 or 2000, this bull will run until about 2020 to 2025.

• You can invest directly in agricultural stocks, such as John Deere (NYSE: DE) or Monsanto (NYSE: MON).

• Another method is to invest in agricultural futures through exchange-traded funds (ETFs), such as Agriculture ETF (LSE: AIGA) on the London Stock Exchange or PowerShares DB Commodity Index (NYSE: DBC) in the United States.

But remember, these are susceptible to market fluctuation.

Another overlooked option is direct investment in farmland. Farmland investments will pay a regular yearly dividend from the sale of crops, and can provide long-term capital gains during a bull market in food. Some direct farmland investment vehicles include Agrifirma in Brazil, Agcapita in Canada, and Chess partners and Hancock in the United States.

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Source: Investment U

What Investors Should Buy: Jeremy Grantham - GMO

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Like many investors, I follow the investment actions of a short list of well respected professional value investors. Near the top of that list is Jeremy Grantham.

Grantham’s letters to investors are usually pretty depressing. He has a knack for spotting bumps in the road and rarely thinks stocks are cheap. So when he provides some advice on what to buy rather than what to avoid I sit up and pay attention.

In his most recent quarterly discussion he did exactly that (link).

Grantham Suggestion #1 – Farmland/Forestry

Grantham comes as close to pounding the table on an investment idea with farmland and forestry. His exact words are “ for those with a long horizon, I am sure well-managed forestry and farmland will outperform the average of all global assets."

I’m not sure I’ve ever seen him use the word “sure” before.

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I only really follow closely one company that fits the bill as a farmland investment and that is Canadian company Sprott Resource Corp (SCPZF.PK). Sprott owns 2.1 million acres of cropland stretching across Alberta, Saskatchewan and Manitoba. Sprott has exposure to gold, silver, oil and fertilizer, but its One Earth Farms has big plans:

“The goal of One Earth Farms Corp. (“One Earth Farms”) is to become Canada’s largest fully integrated corporate farm. A true partnership between the private sector and First Nations, One Earth Farms represents a new model for North American farms. One Earth Farms is committed to becoming an industry leader by delivering superior results and a reduced risk profile through economies of scale, professional management and progressive farming practices.”

At the current stock price of $4.79 I think Sprott Resource is a good long-term bet given the value of its net assets comfortably exceeds that and because management will undoubtedly grow those net assets at a healthy clip.

Grantham isn’t the only smart guy who thinks farmland is a sure bet. Investment biker Jim Rogers and housing meltdown star Michael Burry have both indicated a focus on the sector.

Download your FREE DGC Asset Management Farmland Investment and Agriculture Investment Guide here


 

Grantham Suggestion #2 – Resources in the Ground

Grantham hedges a little on suggestion number two simply because so many of them have increased so much over the past five years. Grantham’s words on resources in the ground were:

“I think it is likely that resources in the ground, hydrocarbons, metals and fertilizer, will also win on a 10-year horizon. I am not certain, though, because of the remarkable gains in so many of these in the last five years. I would put the odds at 2 to 1. As mentioned last quarter, many commodities have the potential for very sharp declines in the short term. If that occurs, then the odds would, of course, rise.”

Strangely there is one company that offers exposure to hydrocarbons, metals and fertilizer. It is again Sprott Resource Corp which I mentioned earlier. But as an investor you could also consider a company affiliated to Sprott Resource Corp and that is Sprott Inc. (SPOXF.PK). I recently provided some detail on Sprott Inc.

The idea is pretty simple. Sprott Inc. is an investment manager focused on all of those resources in the ground that Grantham mentions. If these commodities do well then Sprott’s funds will do well which will in turn attract more investor dollars. I consider it a leveraged play on commodities.

If you are interested in exposure to oil and like to sleep at night I would strongly encourage you to check out Penn West Energy (PWE) which has massive amounts of land in Western Canada that is going to have a lot of oil unlocked by horizontal drilling techniques. Penn West currently yields over 5.5% on existing production and that production is going to ramp up for years as Penn West takes new technology to its land base.

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Grantham Suggestion #3 – Quality Stocks

Grantham has been suggesting a focus on blue chip quality for a while. Here is his most recent advice:

“On a regular time horizon, I would continue to overweight quality stocks, which may well be on a roll. They are not priced to make a fortune, but they are priced to give approximately 4.5% to 5% real return, which I think is acceptable for low-risk assets. They have also delivered dependable downside – risk off – relative performance for several years, which is a characteristic generally in short supply.”

Here are the top holdings from the GMO U.S. Core Fund at the end of June 2011, loaded with blue chip quality ideas:

Microsoft (MSFT) 4.8%

Pfizer (PFE) 4.6%

Wal-Mart (WMT) 4.1%

Oracle (ORCL) 3.8%

Google (GOOG) 3.2%

IBM (IBM) 3.2%

Johnson and Johnson (JNJ) 2.8%

Merck (MRK) 2.7%

Procter and Gamble (PG) 2.7%

Coca-Cola (KO) 2.5%

Exxon Mobil (XOM) 2.4%

Qualcomm (QCOM) 2.3%

Philip Morris (PM) 2.1%

Verizon 1.8% (VZ)

Pepsico 1.8%

Total of top holdings: 44.8%

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Grantham Suggestion #4 – Emerging Markets

Grantham said emerging markets will outperform other non-high quality equities for the next seven years. Grantham points out that in a global financial crisis the foreign reserves held by these emerging economies are twice what is held by developed countries and can help the rebound more quickly or help investors weather through.

Grantham carefully suggests that these developing countries are moving toward the profitability of the developed world:

“Emerging markets are hard to evaluate because they are clearly going through many phases of development in a real hurry. So what is normal profitability? Probably not the old levels. They are moving toward developed status and probably toward our developed world’s level of profitability. (Yes, James Montier, that would be a change and, therefore, I admit, far from certain.)”

 

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Grantham Suggestion #5 – Japan

At the bottom of his recommendation list but still a recommendation nonetheless is Japan, of all places. Grantham’s thesis here is interesting as he thinks Japanese companies may be able to finally move profitability levels toward those of other developed countries.

Here is what Grantham had to say:

“We at GMO also believe that Japan is likely to “regress,” in the mathematical sense, toward levels of profitability that would be considered normal in other developed countries. We expect the progress to be very slow and uneven.

If it does not happen at all, then Japanese stocks are priced like the average of all other developed equities, or a bit cheaper. If, however, by some chance margins improve quite fast, then Japanese stocks will likely be the best performing stocks around and could hit double-digit real returns for seven years. Japan’s remarkable resilience in the face of electricity shortages gives some inkling of what they are capable of. How quickly we have forgotten the nation's obvious talents of 20 years ago. Can all of those talents really be lost forever?”

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Avoid Everything Else
The rest of the letter is classic Grantham, a grumpy old bear. He views global equities not covered above as ranging from unattractive (as of August 2) to very unattractive. He thinks that 950 is fair value on the S&P.

Generally Grantham thinks rise avoidance is a good idea. He suggests cash is a good idea not just because it is a safe haven, but also for its optionality as dry powder to take advantage of opportunities.

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Source: Seeking Alpha

Farmland Investments Raise 16% Annual Returns

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Perry Vieth baled hay on a neighbor’s farm in Wisconsin for two summers during high school in 1972 and 1973. The grueling labor left him with no doubt about getting a college degree so that he’d never have to work as hard again for a paycheck. Thirty-eight years later, and after a career as a securities lawyer and fixed-income trader, Vieth is back on the farm.

Except, now, he owns it. As co-founder of Ceres Partners LLC, a Granger, Indiana-based investment firm, Vieth oversees 61 farms valued at $63.3 million in Illinois, Indiana, Michigan and Tennessee. He’s so enthusiastic about the investments that he quit a job in 2008 overseeing $7 billion in fixed-income assets at PanAgora Asset Management Inc., a Boston-based quantitative money management firm, to focus full time on farming, Bloomberg Markets magazine reports in its September issue.

On a spring afternoon, Vieth, 54, barrels along backcountry roads in a Jeep Cherokee in Indiana and Michigan to scout a fruit orchard and corn and soybean farms to buy. Rural towns with names such as Three Rivers pass by in a blur, separated by a wide horizon of fields with young crops popping up.

“When I told people I was leaving to start an investment fund in farmland, they said, ‘You’re doing what?’” says Vieth, in a red polo golf shirt and khakis. “It will always be difficult for Wall Street firms to understand. It’s not like buying stocks on a computer.”


It’s much better: Returns from farmland have trounced those of equities. Ceres Partners produced an average annual gain of 16.4 percent after fees from January 2008, just after the firm started, through June of this year, Vieth says.

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George Soros

The bulk of the returns are in rent payments from tenant farmers who grow and sell the crops and from land appreciation. The Standard & Poor’s GSCI Agriculture Index of eight raw materials gained 5.3 percent annually over the same period, and the S&P 500 Index (SPX) dropped almost 1 percent.

Investors are pouring into farmland in the U.S. and parts of Europe, Latin America and Africa as global food prices soar. A fund controlled by George Soros, the billionaire hedge-fund manager, owns 23.4 percent of South American farmland venture Adecoagro SA.

Hedge funds Ospraie Management LLC and Passport Capital LLC as well as Harvard University’s endowment are also betting on farming. TIAA-CREF, the $466 billion financial services giant, has $2 billion invested in some 600,000 acres (240,000 hectares) of farmland in Australia, Brazil and North America and wants to double the size of its investment.

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Jim Rogers

“I have frequently told people that one of the best investments in the world will be farmland,” says Jim Rogers, 68, chairman of Singapore-based Rogers Holdings, who predicted the start of the global commodities rally in 1996. “You’ve got to buy in a place where it rains, and you have to have a farmer who knows what he’s doing. If you can do that, you will make a double whammy because the crops are becoming more valuable.”

The growth in demand for food, spurred by the rising middle classes in China, India and other emerging markets, shows no signs of abating. Food prices in June, as measured by a United Nations index of 55 food commodities, were just slightly below their peak in February. The UN’s Food and Agriculture Organization said in a June report that it expects food costs to remain high through 2012.

So many investors have rushed to capitalize on food prices in the past three years that they may be creating a farmland bubble. The Federal Reserve Bank of Kansas City, which covers Colorado, Kansas, Nebraska and other agricultural states, said in May that farmland prices had surged 20 percent in the first quarter compared with a year earlier.

Download your FREE DGC Asset Management Farmland Investment and Agriculture Investment Guide here

Safe Haven

“Yes, farmland will be a bubble again; all agricultural products will be in a bubble again,” says Rogers, who is an investor in Agrifirma Brazil Ltd., a South American farmland owner.

Hedge-fund manager Stephen Diggle calls farming the ultimate safe haven. Diggle began buying farms with his own money in 2008 after Lehman Brothers Holdings Inc. (LEHMQ) filed for bankruptcy in September of that year and the S&P 500 plunged 43 percent in the next six months. He purchased 8,000 acres in Uruguay, three smaller plots in southern Illinois and an 80-acre New Zealand kiwi-and-avocado orchard.

“We really thought all the investment banks would go under,” says Diggle, who as a hedge-fund manager uses options and warrants to bet on price swings in the market. “Everyone said, ‘Buy gold.’ But at the end of the day, you can’t eat it. If everything else goes and I just have these farms, it makes me moderately wealthy.”


Download your FREE DGC Asset Management Farmland Investment and Agriculture Investment Guide here

‘Prosperous China’

The hedge fund Diggle co-founded, Artradis Fund Management Pte in Singapore, suffered about $700 million in losses. He closed it in March and opened another Singapore-based hedge fund, Vulpes Investment Management Pte. Diggle plans to incorporate his five farms into an investment management group run by Vulpes.

From his vantage point in Asia, where the British expatriate has worked for the past two decades, Diggle says he’s witnessed aspiring locals eating their way up the food chain.

“You can see what a more prosperous China will consume,” Diggle, 47, says. “It means more dairy, more meat -- not just pork and chicken.”

Investors find in farmland a respite from the cyclical price swings of the commodities market. Since 1970, there have been at least four price jumps of at least 100 percent that were followed by steep declines in the S&P agriculture commodities index. By contrast, the average value of an acre of farmland tracked by the U.S. Department of Agriculture has been on a mostly steady climb from $737 in 1980 to $2,350 in 2011.

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Leaving BlackRock

“Farmland is the lowest-risk part of the value chain, but it’s also a key part of production,” says Jose Minaya, TIAA- CREF’s head of natural resources and infrastructure investments.

In the U.K., where farm prices are also rising, one money manager traded his career at BlackRock Inc. (BLK) for one in farming. Graham Birch, 51, left in 2009 as the London-based head of the natural resources team at BlackRock, the world’s biggest asset manager, to run his two dairy, wheat and barley farms in southwest England full time.

Birch, who says farming has suffered from a lack of investment and management talent, has spent $1 million on improvements. He now captures all of the effluent from his 600- cow herd, stores it in a 4 million-liter (1-million-gallon) steel tank and uses it as fertilizer for his crops. “At heart, I am basically a businessman, and I want to try to apply the things I learned over the years to see what I could do,” Birch says.

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Wall Street Roots

Ceres Partners’ Wall Street roots are evident in the firm’s makeshift office in an old clapboard farmhouse that sits in the middle of cropland. Lucite tombstones resting on a shelf in a small room mark deals done by Brandon Zick, a former vice president of strategic acquisitions at Morgan Stanley (MS)’s investment management unit. Vieth hired Zick in January to help analyze and manage farm purchases.

Vieth, a 1982 graduate of the University of Notre Dame Law School, began his career as a securities and corporate lawyer before moving to the pits of the Chicago Mercantile Exchange, where he traded S&P 500 options. After a series of stints running an arbitrage team for Fuji Securities Inc. and other firms, he was hired as chief investment officer of fixed income at PanAgora, the quant firm, in 1999.

By about 2006, Vieth’s concerns about the economy were mounting: Inflation was at a low, and the dollar had peaked as U.S. debt and deficits soared. So he searched for an asset class that would benefit from a currency decline and rising prices. His research led him to farms, since a falling dollar boosts U.S. crop exports.


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Falling Dollar

Vieth then connected with Paul Blum, a fellow Notre Dame alumnus who spent some of his youth on a farm in upstate New York and today acts as Ceres’s point person with tenant farmers.

As the dollar fell 24 percent against the euro from January 2006 through May 2008, the pair started buying land as personal investments until the business grew too big for Vieth to manage during evenings and weekends. So, in late 2007, he founded Ceres, just as tightening credit markets began to push the global economy into a recession.

He named the firm Ceres for both the Roman goddess of agriculture and a bar he frequented during his trading days in Chicago. “I was more convinced hard assets were where you wanted to be, and farmland was the best investment I could identify,” Vieth says. By May 2011, he had collected 17,238 acres, mostly in the Midwest.

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Shade and Rocks

When Vieth wants land, he goes shopping, as he does with Zick and Blum under a partly cloudy southern Michigan sky in May. Armed with aerial and soil maps, they look for farms with predictable rainfall, mineral-rich land and good drainage. They avoid land that slopes too much, which could lead to soil erosion.

The trio drive by a 337-acre farm for sale by a bank, and Vieth frowns at the slant of the land and the trees that line the perimeter. “Those trees will shade the corn and stunt growth,” he says. Blum doesn’t like the many rocks scattered on the unplanted dirt. Zick is skeptical that the bank will get its asking price of $7,000 an acre in a foreclosure sale.

The investors next visit a farmer they hired, Ed Kerlikowske Jr., who grows watermelon, peas and corn on their 782-acre spread near Berrien Springs, Michigan. For farmers such as Kerlikowske, the entry of outside investors frees up money for new equipment that they would otherwise have to spend on land. “To really grow the business in today’s economy, you need partners,” Kerlikowske says as he passes around slices of fresh watermelon.

Download your FREE DGC Asset Management Farmland Investment and Agriculture Investment Guide here

Possible Bubble

The farm-investing boom is making lots of people happy, but could it all end in tears? The Federal Deposit Insurance Corp., which regulates banks that lend to farmers, has examined whether investors may be pumping up prices and creating the conditions for a crash like the one that devastated the market in the 1980s, resulting in the failure of 300 farm banks.

In March, then-FDIC Chairman Sheila Bair devoted a symposium to the topic in Washington with the participation of economists, bankers and agricultural experts. “If there is a bubble in farmland prices, I hope the bulk of any correction is borne by investors such as hedge funds and not by the banking industry,” William Isaac, chairman of the FDIC during the farm banking bust and now senior managing director of FTI Consulting Inc. (FCN) said during the event.


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Overpaying

Charles McNairy, whose family has been involved in agriculture since 1871, says neophyte investors who lack a deep understanding of farming are making bad deals. In 2009, McNairy started U.S. Farming Realty Trust LP, a fund based in Kinston, North Carolina, that had raised $261 million as of late May to buy farms, according to a Securities and Exchange Commission filing.

McNairy says funds such as Ceres have been overpaying for land, based on the return from crops. “Ceres shouldn’t be buying in the Midwest,” says McNairy, who declined to disclose the states he invests in. “It’s crazy to be buying up there.”

Vieth disagrees, saying Ceres’s returns prove that his strategy is working. “I certainly don’t want to start slinging mud, but I don’t know what the heck he’s talking about.”

Greyson Colvin, who started farming fund Colvin & Co. LLP in Anoka, Minnesota, in 2009, dismisses the idea of an overheated market. “After the housing bubble, people are a little too quick to assign the word bubble these days,” says Colvin, whose two funds and separately managed accounts hold 2,300 acres of farmland in Iowa, Minnesota and South Dakota valued at more than $10 million.


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Head Winds

Colvin, a former analyst at UBS AG (UBSN) and Credit Suisse Group AG (CSGN), says U.S. farmers aren’t carrying as much debt as they did during the 1980s crisis, which contributed to the downfall of banks as agriculture loans defaulted. The farm debt-to-asset ratio, which peaked in 1985 at 23 percent, is expected to fall to 10.7 percent in 2011, according to Agriculture Department estimates.

Vieth’s farm funds are facing head winds in coming months and years: A likely rise in interest rates will push up his acquisition costs and the value of the dollar, which in turn might hurt commodity exports. While the former trader keeps a close eye on the dollar, he says farming will continue to thrive.

Investors seem to agree. At a dining-room table in the farmhouse in Granger, Vieth sits down at his computer one evening and totals the day’s haul: another $900,000 from investors looking for comfort -- and profits -- in one of the oldest and most essential industries on the planet

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Soucre: Bloomberg

Chinese agro firm make $1.5b agriculture investment in Argentina

Beidahuang Group, a company based in Northeast China's Heilongjiang province, expressed its intention to invest in an agricultural cooperation project with Argentina’s Rio Negro Province, ce.cn reported Monday, quoting media reports in Argentina.

The Chinese company will invest $1.5 billion over 20 years to grow farm produce, including soybeans and corn, and export those crops back to China. The project will use advanced irrigation facilities to develop 300,000 hectares of arable lands for agriculture use, and construct supporting power generators and port expansions.

This project, expected to start this year, will be the first investment in Argentina’s agriculture by Chinese companies, according to the media.

Tony Elumelu Foundation (TEF) to Make $500m Agriculture Investment

The agricultural sector in Nigeria will soon experience a revolution as the Tony Elumelu Foundation (TEF) is set to pump in $500 million to boost activities in the sector.

To this end, the Foundation has entered into partnership with some state governments for the allocation of lands to commence large scale agricultural activities in the country.

Mr. Tony Elumelu, Founder of TEF who disclosed this to journalist in Lagos stated that the world is potentially facing a food security crisis meanwhile Nigeria has land that can feed the continent of Africa as well provide employment to a significant percentage of the teeming unemployed people.

In his words, “The world is facing a potentially food security crisis and I said to my friends and associates ‘team up with me lets create an agricultural revolution. I am not just telling you to come and invest; I am also ready to co-invest with you. Team up with me lets see how we can do this’ and they are responding to it.”

Elumelu stated that the Foundation has appointed a consultant and spoken to six state governments who have promised to give 50 acres of land each, adding “And our consultants are working with the various state ministries to see how we can make it happen.

The Central Bank of Nigeria (CBN) Governor and I spoke, we have a master plan for agriculture revolution in Nigeria so we are trying to see what we want to do, so that together it’s a win-win for agriculture and the country.

Elumelu also stated that he has foreign associates who have indicated interest that they will like to invest in Nigerian agricultural sector, as such the Foundation has been talking to them, telling them that Nigeria has a lot of valuable land, water, the right climate etc and they should come and invest in Nigeria, stating “Our land is huge, come so that we can collectively deal with the issue of food security and also engage our people.”

On what the government should do to make the country an attractive destination for investment, Elumelu stated that the government needs to turn the environment around, stating that it is possible and achievable to do so. “We have to consider all the factors that can make us an attractive destination for investors who have capital to invest; for tourists who wants to visit the country, as well as for workers who want to work and grow a career.

My hope is that in the next four years, the new government would pay strong attention to the issue of competitiveness and ease of doing business so that Nigeria will become a good destination for investment,” he stated.

The TEF founder noted that the country needs to deal with all the factors that will make Nigeria a good destination for investors so that if foreigners have money and are looking for a place to invest, they should come to Nigeria. “Some factors should make a rational investor come to Nigeria.

For instance if you want to import goods into the country for your business, how many days will it take you to clear goods at the ports? Countries have moved to a level where they can clear goods within hours or days.

Can we achieve this in Nigeria? Lets say at the end of this year, we achieve a system whereby people can clear goods at the ports within one week, that will help the investment drive of the country. Similarly other infrastructure that will make us do well as a country, we need to build these things,” he noted.

Source: http://www.vanguardngr.com/2011/06/tef-to-invest-500m-into-agriculture/

Saudi to Double Wheat Stocks with Agriculture Investments

RIYADH: Saudi Arabia expects about two million tons of wheat imports this year unchanged from 2010, and aims to double its reserves to one year’s consumption by 2014, the Kingdom’s Minister of Agriculture said.


Saudi Arabia, which has emerged as a major buyer of wheat, wants to build up reserves of basic commodities such as wheat, rice, oils and sugar to protect itself against the impact of a spike in global food prices and to support its rapidly growing population.

The country began importing wheat in 2009 and is looking to rely entirely on wheat imports by 2016 as it seeks to save precious water.

“We set a policy that we should always have six months of supply in reserves at any moment. We decided this year to increase it to one year,” Fahd Balghunaim said.

The Kingdom currently has around 1.4 million tons of wheat reserves — the equivalent of six months — and will look to double that by 2014, Waleed El-Khereiji, Director General of the Grains Silos and Flour Mills Organization (GSFMO), later said.

The Kingdom is planning to phase out production of other water intensive crops including soya beans and animal fodder.

Saudi Arabia continues to invest in farmland abroad as part of its strategy to secure food supplies and is looking at Kazakhstan, Russia and Ukraine as “probable countries of investment” for growing, Balghunaim said.

Gulf states suffered when international food prices spiked to record levels in 2008, forcing up their import bills.

Last year Saudi Arabia set up a company with a capital of $800 million to invest in farmland abroad, focusing on wheat, rice, sugar and soybeans.

Saudi Industrial Development Fund is granting financing facilities to firms exploring agricultural investments abroad ranging from Indonesia to Ethiopia.

The Ministry of Agriculture acts as a “door opener” for private Saudi investors abroad, Balghunaim said.

Balghunaim said the kingdom, which already invests in Africa, would be interested in investing in south Sudan despite heightened tensions around the ill-defined north-south border.

South Sudan is due to become independent on July 9.

Companies such as Saudi-based National Agricultural Development Co (Nadec) and Abu Dhabi private firm Jenaan — have invested in farmland in northern Sudan.

“The intention is still there. For both north and south,” he said.

Source: http://arabnews.com/economy/article454885.ece

Spotlight turned on agriculture investment boom

Protestors have been demonstrating in Geneva against the growth in investments in agriculture that they say endangers food security in many developing countries.
The second “jetfin AGRO” conference for investors with an eye on agriculture and water took place in the western Swiss city on Tuesday. Meanwhile, the global land-grab phenomenon continues to expand as states attempt to regulate the issue.

Activists from some 25 Swiss non-governmental organisations and unions demonstrated outside the conference at the five-star Kempinski Hotel in Geneva against investments in agriculture and water in developing nations, which they say threaten people’s right to food and water and encourage speculation.

“We have to react against this new phenomenon where pension funds are investing massively in funds promoted by this conference,” said Margot Brogniart, coordinator for the coalition of protestors.

The fact that this is the third such meeting in Geneva in the space of a year, with others planned next week and in September, points to the growing interest by investors and Geneva’s major role, says Ester Wolf, a development specialist with the Bread for all NGO.

“Geneva is becoming a hub for such investments,” she told swissinfo.ch.


“Bright light”
The jetfin AGRO meeting brought together investors, wealth managers and commodity specialists from around the world to discuss strategies for agriculture, described as “the bright light of today’s investment universe”.

Topics included building an agro-business equity portfolio, hedging contracts for agro-investments, agricultural commodities and specific investment destinations such as India, Latin America and the US, as well as strategies for investing in timber and water.

Shaken by two food-price spikes in four years, countries from the Middle East, China, South Korea and elsewhere, concerned about feeding their own people, continue to invest heavily in farmland in places like Africa.

The recent financial crisis has pushed a second wave of private investors to diversify into agriculture.

“It’s a fashionable topic right now,” said Geneva wealth manager Philippe Szokolóczy-Syllaba, founder of My Global Advisor, who was present at the conference.

But investments in agriculture or specific projects remain very complex, he explained, as there is a race to find good quality land that is not too expensive and large financial outlays are needed.



Banks and funds
In Switzerland a number of banks, investment funds and firms are busy in this field, and many others are thought to be active behind the scenes.

In 2009 Credit Suisse and UBS participated in a share issue for Golden Agri-Resources, the world's second-largest palm oil plantation company based in Indonesia.

Private banks Sarasin and Pictet propose agro-related investments, and investment funds have been created in Switzerland, such as GlobalAgriCap in Zurich, GAIA World Agri Fund in Geneva and Man Investments in Pfäffikon.

Myret Zaki, deputy editor of the Swiss financial magazine Bilan, who attended the conference, said there was currently a huge demand to diversify investment portfolios.

“The yield potential from agro investments is not enormous – maybe ten to 20 per cent – and they can be volatile,” she told swissinfo.ch. “But people know that in the long term they can only but appreciate.”

Institutional investors like pension funds have been “disorientated” by recent events and are very open to new types of investments, says Zaki.

“What was formerly seen as exotic is now the norm,” she noted.


Swiss firms
Certain Swiss-based firms are also publicly active in major agriculture projects, such as Glencore, the world’s biggest commodities trader, which is said to own almost 300,000 hectares of farm land around the world.

In 2008 the Geneva-based firm Addax Bioenergy launched a high-profile sugarcane ethanol project on 10,000 hectares of land leased in Sierra Leone. It hopes to create more than 2,000 jobs when the project is fully operational in 2013.

“We need to have a much better idea who the Swiss firms are that are investing in agriculture abroad,” said Maya Graf, a Green Party MP.

She recently filed a series of parliamentary questions on the land-grab phenomenon, including one about how to best ensure investments comply with human rights in the countries concerned.

“Switzerland is actively committed so that the renewed public and private interest for investments in agriculture lead to a win-win solution for all sides,” said Swiss foreign ministry spokeswoman Carole Wälti.

It has also been supporting efforts to improve global regulatory mechanisms governing investment in land and natural resources, such as the “Voluntary Guidelines on the Responsible Governance of Tenure of Land and Other Natural Resources”.

Experts hope the text will be adopted during the next Committee on World Food Security in October 2011.

Source: http://www.swissinfo.ch/eng/politics/Spotlight_turned_on_agro_investment_boom_.html?cid=30421416

Farm ministers to rein in commodity speculation

Plans to limit speculation in commodity markets could be approved by 20 of the world's leading agriculture ministers later this month.

French minister Bruno le Maire will lead his counterparts from G20 member countries on 23 June in seeking measures to reduce price volatility and improve food security.

Agricultural markets needed investment, transparency and international co-ordination, not speculation, said Mr le Maire at the International Grains Council's conference this week.

"We need investors not speculators - we do not need people who come and make excessive profits in a few days in agricultural markets," said Mr le Maire, commenting that in Chicago, more than 80% of positions were held by purely financial players who had no link with production agriculture.

"We don't want to control prices. What we want to fight is not higher prices but excessive volatility." Strategic emergency food reserves would also be part of the plan.

Addressing the challenges of world food security and price volatility, this year's French presidency of the G20 has developed a five-point action plan for agricultural markets (see panel).

However, grain traders at the conference were generally opposed to limits on speculation. "The best markets are unregulated and allowed to perform in a free manner," said Frontier's trading director Jon Duffy.

"Speculation will never make a market, the fundamentals will always make a market.

"The markets are where they are today because of pure supply and demand," he told Farmers Weekly.

"Speculation may make it get there quicker but I would be fairly wary of anything that's going to limit the free market; I don't believe it's good news for anybody. Controlling speculation won't alter food security."

Moves to limit speculation were roundly rejected by other speakers at the International Grains Council conference.

"The greatest risk for trade from government is not that they will do too little but that they will do too much," said US Wheat Associates president Alan Tracy.

"The markets are not perfect but at the end of the day signals given out by the market are better than those given out by governments," said Rod Gravelet-Blondin, senior general manager of commodity derivatives at the Johannesburg Stock Exchange.

In a similar bid to that of the G20, an EU review of financial regulation is also considering market intervention by limiting the size of positions which can be taken on commodity futures markets.

Source: http://www.fwi.co.uk/Articles/2011/06/09/127236/Farm-ministers-to-rein-in-commodity-speculation.htm

FAO and RFA Disagree with Oxfam on Biofuels and Food Security

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According to the Global Renewable Fuels Alliance (GRFA) a recent Oxfam report rightly exposes the effects of dangerous commodity speculation, escalating oil prices, short-falls in agriculture technology, and climate change on future world food supplies. However the report fails in its assessment of biofuels and their impact on global food security.

A recent UN Food and Agriculture Organization report said that investment in biofuels could actually help improve food security in rural economies by creating jobs and boosting incomes. The head of the FAO's Bioenergy and Food Security project, Heiner Thofern, said that if "done properly and when appropriate, bio-energy development offers a chance to drive investment and jobs into areas that are literally starving for them."

"The GRFA fully agrees with the FAO that biofuels are part of the solution," stated Bliss Baker, spokesperson for the GRFA. "Oxfam should recognize that biofuels have the ability to help impoverished people by attracting much needed investment in agriculture, particularly in developing countries," added Baker.

Recently the International Energy Agency released their Technology Roadmap: Biofuels for Transport which found that by 2050, biofuels could provide 27 per cent of the world's total transport fuel which would eliminate around 2.1 gigatonnes of CO2 emissions per year. The IEA went on to say that this could be achieved while not compromising global food security.

"Some of the factors affecting global food security should concern Oxfam," stated Baker. "Nevertheless biofuels are a clear part of the food and energy security answer because they encourage greatly needed agricultural investment and reduce GHG emissions without jeopardizing food security," concluded Baker.

The Global Renewable Fuels Alliance is a non-profit organization dedicated to promoting biofuel friendly policies internationally. Alliance members represent over 65 per cent of the global biofuels production from 44 countries. Through the development of new technologies and best practices, the Alliance members are committed to producing renewable fuels with the smallest possible footprint.

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Source: marketwire.com

Wheat prices soar as IGC forecasts harvest deficit

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The world will not, after all, balance its books in wheat next season, despite weaker prospects for consumption by biofuels plants highlighted by the mothballing of Europe's biggest bioethanol plant.

The International Grains Council cut its forecast for world wheat consumption in 2011-12 by 3m tonnes, to 669m tonnes, reflecting in part lower expectations for use by biofuels users such as the UK's Ensus site, which is being mothballed because of high grain prices.

"Use [of wheat] for ethanol is growing less quickly than expected, including in the European Union, while greater use of alternative feeds, including barley, is expected to cut the feeding of wheat in Russia," the influential group said.


However, it lowered its estimate for production even more, by 5m tonnes, to 667m tonnes, reflecting "overly dry conditions in the southern US, much of Europe, and parts of the former Soviet Union".

"The outlook for wheat crops has been affected by unfavourable weather in a number of countries."

'Panic buying'

The warning places the intergovernmental group among the growing band of forecasters to ditch expectations of a rise, or even stasis, in global wheat stocks in 2011-12, although inventories are set to remain at an ample level.

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The grain's stocks-to-use ratio, a metric of the availability of a crop, and therefore of its price potential, will come in at 27.7% on IGC estimates, well above the 21.3% level in 2007-08 which helped fuel the last spike in prices.

And it came as, thanks to weather scares, wheat futures posted a second day of strong gains, notably in Minneapolis, which trades spring wheat, which US and Canadian farmers are struggling to plant amidst overly damp conditions.

Minneapolis wheat for July soared to $10.78 a bushel at one point, the highest for a spot contract since July 2008.

"Some panic buying is finally surfacing because of the continued delays in the Northern Plains," Darrell Holaday at US broker Country Futures said.

In Europe, grain institute Arvalis raised its estimate of drought damage to France's soft wheat crop, the region's biggest, to "more than 10%" from "far more than 5%".

Total grains

The IGC edged is forecast for consumption of corn by US bioethanol plants in 2011-12 lower too meaning that, while the estimate for production of overall grains was cut by 5m tonnes, inventories were seen higher than before, at 338m tonnes.

Stocks are expected to end this season at 348m tonnes.

Total grain stocks held by major exporters – a metric which exclude those held by countries such as China which are rarely traded, and so have less of an impact on prices – were pegged at 111m tonnes, an eight-year low but 3m tonnes above the previous forecast.

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Source: Agrimoney.com

UK wheat supplies cut to 'tightest in modern era'

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UK officials have bowed to the bumper pace of exports and forecast that the country's wheat supplies will end next month at their tightest "in the modern era" – although some believe even this revision may not be the last.

The Home Grown Cereals Authority cut by 91,000 tonnes, to 1.51m tonnes, its estimate for wheat stocks in the European Union's third largest grower of the grain at the close of the 2010-11 crop year.

"This creates the lowest stocks-to-usage ratio since 1997-98," the HGCA said, with the data implying inventories finishing 2010-11 at the equivalent of 10.9% of domestic consumption, or less than six weeks of use.

Michael Archer, the HGCA's senior cereals and oilseeds analyst, told Agrimoney.com that given the different structure of the UK wheat market now and that 13 years ago – which had yet to see changes such as the reform of the EU's common agricultural policy and the widespread use of futures – the figure could be seen as the "lowest we have had in the modern era".

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Ensus effect

The stocks revision reflected lower expectations for imports, which were downgraded by 33,000 tonnes to 1.05m tonnes, and a higher figure for exports, hiked by 335,900 tonnes to 2.44m tonnes - a rise of one-third year on year.

UK wheat has found fresh demand, including its first shipments to Turkey, as buyers denied supplies by Russian and Ukrainian export curbs sought replacement sources, and as France bought in feed grain to replace its own wheat which, even of lower quality, has been finding export orders for food use.

This more than offset the impact of a 108,000-tonne cut to food and industrial consumption of wheat, reflecting the mothballing of the Ensus wheat bioethanol plant in northern England, which is due to shut down over the next few days because of the margin squeeze caused by high grain costs.

However, even the revised stocks estimate may not be low enough, some observers believe, given that exports have reached 2.34m tonnes with three months of the crop year left to go.

"I can see them tailing off, but not that quickly," one trader told Agrimoney.com.

"I can see stocks ending tighter yet."

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Stacking up the data

Mr Archer said that the export estimate indeed reflected an assessment that shipments would tail off sharply.

"If they are stronger, it makes the figures difficult to add up," he said.

"It implies higher imports, which we do not expect, or weaker domestic use, which we do not expect, or even lower stocks, which it is difficult to see realistically occurring."

London's old crop July wheat contract stood 1.0% higher at £194.00 a tonne in late deals on an upbeat day for world grains, with Chicago wheat gaining more than 2%, and Minneapolis spring wheat jumping 3%.

London's beter-traded November contract stood 1.1% higher at £193.50 a tonne.

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Source: Agrimoney.com

Australian Grain Handler Earnings up 66%

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GrainCorp shares jumped nearly 8% after the Australian crop handler unveiled a 66% jump in earnings, raised its profits outlook and flagged upbeat prospects heading even into 2013.

The Sydney-based group reported profits of Aus$88m for the October-to-March half, up from Aus$53m a year before, boosted by the record harvest in its eastern Australian fiefdom.

The company's grain receivals doubled to 14.4m tonnes.

"It's a big year for a volume-based business like ours. Our grains businesses are having an unprecedented year," Alison Watkins, the GrainCorp chief executive said.

The grain marketing division reported earnings before interest, tax, depreciation and amortisation (ebitda) more than doubled, to Aus$35m, with the ports unit seeing ebitda jump 160% to Aus$55m.

Exports jump

And GrainCorp forecast good times ahead, raising its outlook for earnings for the full year to the end of September to Aus$145m-165m, from Aus$115m-135m.

Analysts have factored in full-year earnings of Aus$132m.

"Second-half earnings from grain handling will be supported by the significant carry forward of grain in our country elevators. This means earnings from storage will be higher than the previous half year," Ms Watkins said.

The group also edged higher to 7m-8m tonnes, from 6.5m-7.5m tonnes, its forecast for export volumes, which doubled to 3.2m tonnes in the first half.

Another strong harvest?

Prospects looked better for 2011-12 financial year too, given that GrainCorp expects to begin it with carryover stocks of an "above average" 6m tonnes of grain, compared with the 2.6m tonnes with which it started the current financial year.

The group forecast "busy storage, and logistics and export programmes" for 2011-12, boosted also by the prospect of "positive crop volume" from Australia's next harvest too.

GrainCorp quoted Australian Crop Forecasters data forecasting an eastern Australian barley and canola crop of 19.0m tonnes, compared with some 22m tonnes from the last harvest, but nonetheless a historically strong result.

The forecast assumes sowings rising 8% to 9.5m hectares, but yields dropping 20% to 2.0 tonnes per hectare from last time, when plentiful rains boosted crops.

GrainCorp said that the crop volumes it was left with as of the beginning of its 2012-13 financial year were "likely" to prove "above long-term average" levels.

Malt decline

The data did reveal a 3.4% decline to Aus$ 57m in ebitda at the malt business, blamed on an "unfavourable" exchange rate, following the appreciation in the dollar to its highest for nearly 30 years against the US dollar.

"Consolidation in the global brewing industry is giving brewers additional bargaining power with suppliers," Ms Watkins added.

The first half results were also swollen by a $40.4m gain from marking derivatives to market prices, a windfall the group expects to realise in the second half of its financial year.

Nonetheless, GrainCorp shares closed up Aus$0.62 at Aus$8.38.

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Source: Agrimoney.com

Romania’s wheat harvest may rise 23 percent this year

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Romania’s wheat harvest may rise 23 percent this year, helped by favorable weather and higher investment in fertilizers, Agriculture Minister Valeriu Tabara said. The eastern European country may harvest as much as 7 million metric tons of the grain, up from 5.7 million tons last year, he said in an interview in Bucharest. The government wants to increase exports of all cereals so farmers can capitalize on higher international prices, Tabara said reports Bloomberg.

Source: Balkans News

OECD Present at Leading World Agriculture Investment Conference

Over 80 institutional investors and fund managers are set to hear exclusive OECD updates on the determinants of agro-investment and initiatives for promoting investment in agriculture.

Emergent Asset management, Macquarie, Duxton Asset Management, InvestAg Savills and many more are also onboard to contribute to the broader discussion around strategies and risks for participating in agriculture.

This exclusive meeting provides a once-only chance in June (29-30) to network with key investors and Ag managers, and to effortlessly catch-up on where allocations are being made and how best to develop the ideal Ag portfolio.

The World Agriculture Investment Conference Asia is the third event in our global series: please contact George Kiley to learn more about our Europe (as covered by BBC, Thomson Reuters and Wall Street Journal) and USA events.


Read more: http://www.digitaljournal.com/pr/318802#ixzz1NSW08Pya

G8 Warned of Pending Food Crisis

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G8 leaders are being called on to make stronger ties with Africa a top priority at their meeting in Deauville, France, especially regarding food security and poverty reduction. The International Food Policy Research Institute [IFPRI] warned of another food crisis unless action is taken.

“For the last decade or so, the partnership between Africa and the development agencies or the development partners, has been strengthened significantly. But I think there’s still room to improve. In particular, the G8 countries should really, really think seriously to meet the commitments they have made before,” said Shenggen Fan, IFPRI director general.

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It could happen again

At the L’Aquila summit in Italy in 2009, G8 leaders pledged to take action to deal with the food crisis, which saw prices rise and supplies fall. The conditions triggered riots in a number of countries in 2007 and 2008.

Fan said, “When the G8 met in Italy, they committed $22 billion to support smallholder agriculture in developing countries, particularly Africa. Today, that commitment is still there [but] they have not met much of the commitment yet.”

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He warned the world is poised to have another food crisis, unless the pledge is paid in full.

“I think it’s already coming. In the last 10 months, the wheat price has increased by a hundred percent. Maize price has also increased by 100%. In addition, prices for meat, dairy products have also increased,” he said.

Feeling the effects

When food prices increase many poor, not only just the consumers, but also even producers, suffer,” he said, and added, “If it happens again, we will probably lose the progress we have made in the last decade or so.”

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He warned women and children are the most vulnerable to volatile prices and markets. Hunger and malnutrition, he said, can permanently damage a child’s brain development. “We need to fix this problem.”

He rejected the idea of spending cutbacks on agriculture because of the global recession.

“Agriculture is so critical in terms of hunger reduction, poverty reduction and also in terms of future growth. If we do not invest in agriculture…more people will suffer from hunger and poverty,” he said.

MDGs

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The U.N. Millennium Development Goals are due to be achieved in 2015. The goals cover a wide range of issues, including poverty, hunger and health. Fan said the $22 billion in promised agricultural investment would help in reaching those goals.

“I think $22 billion is a good start, but it’s definitely not sufficient. More resources are required. And more importantly, these resources have to be spent more efficiently to achieve certain development goals by improving policies, governance, management and institutions,” he said.

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IFPRI reported African countries have taken the initiative to improve their agricultural sector.

“They have made progress in the last decade or so. Many countries have increased their spending in agriculture. We have seen some successes in many parts of Africa. Agriculture growth is accelerating, but we need to continue to do that,” said Fan.

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Source: VOA News

Hedge fund managers pour assets into farmland as doomsday food scenario approaches

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Going back to the land has always been thought of as a thing for hippies, eco-nuts, and doomsday survivalist, but now hedge fund managers are jumping on the bandwagon too.

The New York Observer recently spoke to such a hedge fund manager working on a fund that ranks as approximately the 15th largest farmer in America.

The media first picked up on the land investment pattern in 2008 in the February Times of London piece, "The Hedge Fund Manager Who Bought a Farm," which detailed a British hedge fund manager's attempt to play off the rising prices of grains in order to get a hold of local farmland. It was followed shortly by coverage by the Financial Times that said hedge funds and investment banks were "swapping their Gucci for gumboots".

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Today, the increase in the purchase of farmland both in America and abroad is so drastic that in February, Thomas Hoenig, the president of the Federal Reserve Bank of Kansas City, warned against the possibilities of a farmland bubble.

A January study commissioned by the Organization for Economic Cooperation and Development estimated the amount of private capital currently committed to farmland and agricultural infrastructure at $14 billion. It also estimated that future investments will "dwarf" what's currently being thrown into land by two to three times and projected the amount of capital potentially entering the sector over the next decade to go beyond $150 billion.

The recent spike in investments of farmland is being driven by fear. The hedge fund manager and others see a doomsday scenario brought on by a dollar crisis, out of control inflation and an uncertain political climate both domestically and globally.

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"The CPI supposedly today is something like 1.5 percent. We think the actual rate of inflation is something closer to 6 or 7 percent on an annual basis," said the hedge fund manager. "It's also not about what it's been over the last 10 years; it's about what it's going to be over the next 10 years."

Does he think this is an end of the world situation?

"It really is. I tell my fiancee this from time to time, and I've stopped telling her this, because it's not the most pleasant thought," he said. "We just can't keep living the way we're living. It'll end within our lifetime. We're just going to run out of certain things. We'll just have to learn how to adjust."

With recent news that the World Food Program is running out of food (http://www.upi.com/Top_News/World-N...) and the U.S. may not be far behind (http://www.dailyfinance.com/2010/01...), things are not looking good.

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"Sometime in the next few years, we're going to have very serious shortages of food everywhere in the world," said investor Jim Rogers on CNBC. "And prices are going to go through the roof."

The new information is just another reason this may not be a bad time for regular people to start growing their own food and even investing in farmland.

Sources for this article include:
http://www.naturalnews.com/032509_farmland_doomsday.html
http://www.observer.com/hedge-funds  ...
http://www.upi.com/Top_News/World-N  ...
http://www.dailyfinance.com/2010/0 1 ...

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Learn more: http://www.naturalnews.com/032509_farmland_doomsday.html#ixzz1NSNbZOBH

Rise in Midwest farmland prices hits 32-year high

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The rate of increase in Midwest farm values has hit a 32-year high, despite a rise in land for sale – and the rally does not look over yet.

Farmland prices in major agricultural states such as Illinois and Iowa soared 16%, year on year, in the first quarter of 2011, the Federal Reserve said.

The increase in the growth rate to a figure matched only once since 1979, in 2007, came despite a rise in the plots offered for sale, with the extra supplies mopped up in particular by farmers clamouring for extra land to cash in on elevated crop prices.

"The latest gains were spurred by higher commodity prices, which prompted farmers to buy additional land," the Federal Reserve's Chicago bank said.

Indeed, farmers "tended to outbid" investors in the land rush.

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Market boom

The market conditions, with rising prices and volumes, would appear ideal for agents assisting in land sales, and relying on commissions for deals.

"The number of farms sold, the acreage sold, and the amount of farmland for sale grew," the Chicago Fed said.

And more than half bankers the Fed spoke to for its report forecast further gains ahead for land prices, with only 2% expecting a decline.

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"The rapid increase in agricultural land values may not be over," the Fed said, adding that the increases had been reflected in rental prices, which had risen nearly in line, with 14%.

Paybacks

The rise in land prices was supported by an increase in funds for lending to farmers although, at just under 70%, the loan-to-deposit ratio – a key measure of the levels to which borrowers are extending themselves – fell to a 14-year low and well below levels ringing alarm bells in banks.

Indeed, farmers paid of a stack of borrowings taken out for purchases other than land, with demand for new ones falling to a 24-year low.

"Farmers had less need to seek bank loans," the Fed said.

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Source: Agrimoney

Brazil crops join list threatened by poor weather

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Brazil has been added to the list of major producing countries suffering weather scares, with a lack of rain threatening the loss of up to 3m tonnes of corn, and potentially some cotton too.

Up to one-half of the so-called "safrinha" corn crop, also called the winter or second harvest, could be under threat in some areas of central Brazil thanks to the early onset of the dry season, analyst Michael Cordonnier said.

The impact of the premature dry season – which started in mid-April, some three weeks ahead of schedule - has been heightened by farmers' decision to sow corn late, after a delayed harvest of summer crops.

Farmers in central Brazil were seeding corn three-to-four weeks after the ideal window closed on February 20, but were encouraged into late sowings by government concessions on cut-off dates for crop insurance claims.

"Everyone knew there was a potential problem, but had their fingers crossed that it would rain into June, as it did two years ago," Dr Cordonnier, at Soybean and Corn Advisor, told Agrimoney.com.

"Unfortunately, it has not worked out that way."

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About half the crop was planted "too late, and the soil moisture supplies have run out before the grain-fill process is completed".

'Getting ugly'

The setback has left Brazil facing the loss of up to 3m tonnes of safrinha corn, said Dr Cordonnier, whose own forecast of a 52m-tonne crop in 2010-11 – main and second crops combined - compares with an estimate of 55m tonnes by Conab, Brazil's official crop bureau.

The warning follows a caution from Brazil-based crop consultant Kory Melby that the harvest in Mato Grosso, which is responsible for about one-third of safrinha plantings, would come in at 6m tonnes, 1.5m tonnes below the Conab estimate.

"The local rule of thumb is never plant second crop corn after Feb 25. However, many did," Mr Melby said.

There has been "no rain since April 10", he said, adding that the situation was "getting ugly".

Cotton too?

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Dr Cordonnier added that the second cotton crop could be affected by the lack of rain too although, being "much more drought tolerant crop than corn", this was far less of an issue for the fibre.

Furthermore, the second cotton crop accounts for less than 20% of total cotton plantings. For corn, safrinha sowings represent about 40% of the total.

The dearth of rain was not an issue for areas growing sugar, of which Brazil is the top producer and exporter, he added.

Fires in Siberia

Brazil's dry spell adds the country to a list including Canada, the US, Europe and, increasingly the former Soviet Union, where weather extremes are causing alarm in grain markets.

In Russia, "wildfires in Siberia remind people of the drought of last year", Agritel, the crop consultancy, said.

However, there are some forecasts of rain for dry areas of northern Europe later in the week, with the potential for drier weather from next weekend in regions of the US where farmers struggling against wet conditions to get crops sown.

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Source: Agrimoney

Bankers Disagree with FED Over US Farmland Values

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Farmland values could "plummet" in the US – potentially by one-half – if the market supports of low interest rates and high crop prices crumble, the US central bank has warned, heightening concerns over the market boom.

Record farmland prices, which in the Midwest increased at their fastest in 32-years in the first three months of 2011, appears rational as long as borrowing costs remain low, reducing investors' hurdle rates for returns, while elevated crop values keep actual profits high.

"Current farmland values reflect high farm revenues and low capitalisation rates," the US Federal Reserve system's Kansas bank said.

However, they "could fall sharply if crop prices sag or future interest rates rise", the bank added, warning of a "high risk" from interest rate moves.

'Values could plummet'

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Indeed, higher interest rates are, besides making investors more demanding of returns from their purchases, likely to present the farmland market with a second blow of a stronger dollar which, in making US exports such as crops less competitive, would undermine agricultural commodity values.

"As the economy strengthens, interest rates could rise, which may lift capitalisation rates and lower farm revenues," the bank said in a report.

"Events such as these could become a recipe for falling land values and the erosion of farm wealth."

Indeed, the market could fare worse than in the early 1980s, when a jump in interest rates, coupled with lower US farm exports and weaker commodity prices, fuelled at 40% slide in US farmland values – even after taking inflation into account.

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"If similar events occur in today's environment, farmland values could plummet," the briefing said, with this scenario implying as halving in Nebraska prices.

"Other regions face similar risks."

Market bubble?

Thomas Hoenig, the president of the Fed's Kansas City bank, has been for some while a sceptic of the rise in farmland prices, warning in February that ''history has taught us that it is nearly impossible to determine how much of the farmland boom may be an unsustainable bubble driven by financial markets".

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Other observers who have voiced concerns include Robert Shiller, the Yale economist who warned in March that the farmland was a "dark horse" as the site of the next market bubble, while regulators at the Federal Deposit Insurance Corp have highlighted the sector's resilience at a time of weakness elsewhere in the economy.

"While we don't see a credit problem in agriculture at this time, the steep rise in farmland prices we have seen in recent years creates the potential for agriculture credit problems sometime down the road," Sheila Bair, FSIC chairman, said, also in March.

Alternative views

However, many other bankers are more sanguine about the market, with two-thirds of those surveyed by the Fed's Kansas City bank for a report two weeks ago believing prices would level off, rather than tumble, following growth of 20% in the first quarter.

A report from the system's Chicago bank last week showed more than half bankers expecting the market price growth to continue, while adding that farmers' borrowing, compared with deposits, remained comfortably below level triggering alarm bells.

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Source: Agrimoney

Pension Fund Investors may be to Blame For Food Prices

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GENEVA, May 17, 2011 (IPS) - Long-term investors like pension funds are probably the reason why the prices of commodities, including crops, have been driven to a higher level than in 2008 when food riots erupted in 30 countries, according to the British nongovernmental organisation Christian Aid.

"In recent years, the way food prices have risen has mirrored the way investment has flowed into the individual commodities futures markets", Andrew Hogg, campaigns editor at Christian Aid, told IPS in an interview.

The social justice organisation has just released "Hungry for justice: Fighting starvation in an age of plenty", a study indicating that between Jan. 2005 and Jun. 2008, food prices rose by an average of 83 percent. And it is even worse now: in Feb. 2011, they trumped the record figures of Jun. 2008 when food riots erupted in some 30 countries.

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While financial speculation in agricultural products has largely contributed to this increase, the study suggests that the main responsibility does not lie with hedge funds and "cowboy" speculators, as usually assumed, but rather with the more prudent institutional investors such as pension funds.

"While we are not able to definitively prove that investment in commodity futures is driving up food prices, we are saying that the similarities in increases makes a strong case for urgent investigation into whether this enormous amount of money is contributing to global hunger," Hogg specified.

In financial jargon, "futures" are what is believed a crop would be worth at some defined point in the future when it will be harvested.

While these products have been around for hundreds of years - usually as a way of giving farmers an advance income to invest in production - today companies have a huge amount of money to invest in the respective values of crops.

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Another major turn has been the creation of commodity index funds, that is, indices of commodities bundled together.

Goldman Sachs opened the first commodity index fund in 1991. The bank selected 18 commodities, including wheat, coffee, cocoa and pork, and invited investors to invest in this bundle of commodities rather than in individual ones. Since then, other indices have appeared.

Following the U.S.’s deregulation of commodities trading in indices in 2000, these funds began to attract an influx of non-traditional investors, such as pension funds and managed investment funds that were betting on the rise of commodities after the burst of the dot-com bubble.

The total value held by institutional investors in these funds increased from 15 billion dollars in 2003 to 317 billion dollars in mid-2008.

In contrast with hedge funds where selling and buying of shares happen at a rapid pace and where funds move "against the market" – they buy when the price is low and sell when it is high – long-term institutional investors look for "safe" returns. And since people will always need to eat, food crops are seen as low risk investments.

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"Never again should policymakers agree to such regulatory changes without assessing their impact on the poor in developing countries," Hogg exclaimed. "It is impossible now to ban investment in commodity futures but we send a strong warning that these consequences had not been predicted. People should have thought about this more."

The Food and Agriculture Organisation estimates that almost one billion people experience chronic hunger. "This is a scandal in an age where we should be able to feed everybody," Hogg commented.

"There will always be shortages due to events like earthquakes, wars or cyclones, but they can be remedied with international aid. The persistent problem of hunger should attract our concern, particularly since things may get even worse in future," added Hogg.

One of the main threats to chronic hunger comes from climate change. Some surveys suggest that if nothing is done, the number of malnourished children under five is going to be 24 million higher in 2050 than if the climate had remained unchanged.

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In Africa it is predicted that, by 2020, some 75 to 250 million people in places such as northern Kenya will be exposed to increased water stress that will drive them to urban areas.

Another neglected issue is investment in agriculture. "We call for sustainable agricultural practices and more investment in agriculture," Hogg continued.

"Agriculture has been badly hit because the West has tried to impose economic policies on developing countries that have not worked. What we suggest is that investment and research be increased. Ultimately the small-holder farmer could be the solution to the question of food security."

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In the first half of May a cabinet minister of Cameroon, speaking in Geneva, called it a "scandal" that the West African country imports 90 percent of the rice it consumes. He issued a plea to foreigners to invest in agriculture in Cameroon.

He insisted, however, that as his country aims to be self-sufficient, the resulting crops should primarily feed the local population with only the surplus being exported. Also, value addition should be done locally.

Hogg pointed out that Christian Aid does not believe that foreign direct investment (FDI) is necessarily devoid of benefits for locals.

If provisions are put in place to protect the livelihoods and land rights of people, FDI could be to their advantage. But it should be recognised that people living on the land might not have enough negotiating power to protect their livelihoods, therefore contracts have to be carefully scrutinised.

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Source: IPS News