Corn Farms Replace New York Lofts as Hottest Property (Update1)
By Jeff Wilson
Feb. 20 (Bloomberg) -- Farmland from Iowa to Argentina is rising faster in price than apartments in Manhattan and London for the first time in 30 years.
Demand for corn used in ethanol increased the value of crop land 16 percent in Indiana and 35 percent in Idaho in 2006, government figures show. The price of a Soho loft appreciated only 12 percent, while a pied-a-terre in Islington near London's financial district gained 11 percent, according to realtors.
Farmland returns ``will take a quantum leap over the next 18 months,'' after corn prices surged to a 10-year high in February, said Murray Wise, the 58-year-old chairman and chief executive officer of Westchester Group Inc. in Champaign, Illinois, who oversees $460 million of land investments.
Wise, who was born on a Canadian farm and now manages 85,000 acres, said prices in the U.S. Midwest may gain 12 percent a year through 2017. Farmland rose in value in 34 of the last 37 years, according to data compiled by UBSAgriVest, a unit of UBS AG, the world's biggest money manager. The returns are attracting hedge funds and investment brokers.
Hancock Agricultural Investment Group in Boston purchased $100 million of farmland in the past year, increasing its holdings by 13 percent to $865 million. Macquarie Bank Ltd., Australia's largest securities firm, plans to spend as much as A$1 billion ($775 million) on ranches in Australia for a new agricultural fund.
Pergam Finance, a Paris-based investment company with $1 billion in assets, two years ago started Campos Orientales, a fund that buys farmland in Argentina and Uruguay. The company formed a venture with Bellamar Estancias, owned by Argentina's Hirsch family, that manages 120,000 hectares and plans to raise $70 million for farmland acquisitions.
Australian Pastures
In Queensland, Australia's biggest cattle-grazing state, land rose by about 10 percent to between A$500 ($394) and A$550 an acre in 2006, said Dick Allpass, a rural property consultant at Adelaide-based Elders Australia Ltd.
Orders for food and feedstock from China in the last five years helped boost prime Australian farmland by as much as 300 percent, said Wayne Carlson, general manager for agribusiness at Melbourne-based National Australia Bank Ltd., the nation's largest lender.
``That rise of the last few years is what has made some of these fund managers and investment groups say, `Why hell, why aren't we in this?''' Carlson said.
Price Increases
Average U.S. farm prices increased by 15 percent in 2006, Agriculture Department data show. The cost of buying corn farms in Argentina, the world's second-largest exporter of the grain, jumped 27 percent, according to Buenos Aires industry newsletter Margenes Agropecuarios.
Marc Faber, a Hong Kong-based investor who manages about $300 million, says one of his favorite stocks is Cresud SA, a landowner in Argentina's Pampas region. The shares jumped 63 percent last year. Farmland is ``very inexpensive in a world of inflated asset prices,'' he said in an interview Feb. 4 from Bermuda.
The demand for corn used in ethanol got a boost from U.S. President George W. Bush last month, when he urged a fivefold increase in renewable fuels by 2017. To meet Bush's goal, 12.5 billion bushels of corn would be needed, 19 percent more than was harvested last year in the U.S., the world's biggest producer.
``It is not the investor that is pushing up land prices, it is the surge in corn prices from ethanol demand,'' said Jim Farrell, chief executive officer at Farmers National Co. in Omaha, which manages almost 1.2 million acres of farmland on 3,700 farms. ``Midwest farmland is predicated by the strength or weakness of corn prices.''
Corn futures have jumped 82 percent on the Chicago Board of Trade in the past year. They gained 0.6 percent to $4.32 a bushel in electronic trading as of 3:43 a.m. local time
Less Farmland
The rally is helped by a reduction in the number of acres available for planting. 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, according to the Worldwatch Institute in Washington, which does research on food production. Crop land also is lost because of development and lack of irrigation, the institute said.
``Ethanol is not the only story here -- it is just the one getting headlines,'' said Jeff Conrad, 45, president and managing director for Hancock Agricultural, a unit of Manulife Financial Corp. ``The supply side is the big unknown because we know demand is rising.'' Conrad manages 126,000 acres in the U.S. and 7,000 acres of wine g****s and macadamia nuts in Australia.
U.S. farmland declined by 9.6 million acres, or 2.8 percent, in the two decades ending in 2001, according to the most recent data available from the government.
Farm Bulls
Jim Rogers, the hedge fund manager who predicted the start of the commodity rally in 1999, said global warming will hinder crops and has advised purchasing farmland for at least a decade.
``Because of the disruptions, agricultural prices will go through the roof,'' he told reporters in Melbourne on Feb. 7. ``I am extremely bullish on agriculture.''
To be sure, farmland has seen rallies before that were halted by surging interest rates or plunging commodity prices.
In the three years ending in 1975, prices rose more than 30 percent annually in Iowa, when the cost of fuel surged during the 1973 Arab oil embargo and the former Soviet Union bought record amounts of U.S. corn and wheat to make up for domestic crop losses. U.S. farmers bought more land with borrowed money.
Iowa farmland more than tripled from $482 an acre in 1972 to $2,147 in 1981. After the Federal Reserve boosted interest to 20 percent in 1980 and again in 1981 to curb inflation, farmland prices plunged more than 60 percent from 1981 to 1986.
Interest-Rate Risk
``Sharp interest-rate increases are a risk to farmland appreciation'' by boosting the value of the dollar and hurting U.S. crop exports, Conrad said. ``A sustained drop in crude-oil prices would take the shine off the ethanol market,'' he said.
``Farmland prices are dependent on commodity prices, which are incredibly volatile,'' said Liam Bailey, head of research at Knight Frank LLP, a real estate agent in London that handles about 25 percent of U.K. farmland sales. ``You have to be prepared to ride the ups and downs. You could see a massive reversal in prices.''
Returns from farmland have averaged 10.9 percent annually the last 15 years, the National Council of Real Estate Investment Fiduciaries in Chicago said. The Standard & Poor's 500 Index of stocks has risen 10.7 percent each year, while the return from the Lehman Government Bond Index was 6.3 percent.
Iowa Rising
Home prices fell in half of the cities in the U.S. last quarter, the National Association of Realtors said last week. Prices in 70 U.S. cities including Las Vegas and Washington may drop 10 percent or more between now and 2009 on higher borrowing costs, according to a study by Economy.com, a unit of Moody's Corp.
Land in Iowa, the biggest U.S. producer of corn and home to the most ethanol plants, surpassed $5,000 an acre from a high of $4,200 a year ago, said Monty Meusch, 55, a vice president for Farmers National Co., a property broker and farmland manager in Omaha, Nebraska. A 200-acre Iowa farm increased 14 percent in a month when it sold for $5,700 an acre in October, he said.
In Manhattan, the average apartment increased by 3.2 percent last year, the smallest gain in a decade, to $1.22 million, estimates Miller Samuel Inc., the borough's largest appraiser.
While asking prices soared 62 percent in London's Kensington and Chelsea neighborhoods, the rise in actual sales prices was 16 percent last year to 677,318 pounds ($1.32 million), according to Land Registry and realtor data.
``Three years ago people were skeptical about investing in farmland,'' said Olivier Combastet, founder of Pergam. ``It's become much more sexy.''
He anticipates annual returns of 15 percent in the next five years from his South American land investments.
To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net .
By Jeff Wilson
Feb. 20 (Bloomberg) -- Farmland from Iowa to Argentina is rising faster in price than apartments in Manhattan and London for the first time in 30 years.
Demand for corn used in ethanol increased the value of crop land 16 percent in Indiana and 35 percent in Idaho in 2006, government figures show. The price of a Soho loft appreciated only 12 percent, while a pied-a-terre in Islington near London's financial district gained 11 percent, according to realtors.
Farmland returns ``will take a quantum leap over the next 18 months,'' after corn prices surged to a 10-year high in February, said Murray Wise, the 58-year-old chairman and chief executive officer of Westchester Group Inc. in Champaign, Illinois, who oversees $460 million of land investments.
Wise, who was born on a Canadian farm and now manages 85,000 acres, said prices in the U.S. Midwest may gain 12 percent a year through 2017. Farmland rose in value in 34 of the last 37 years, according to data compiled by UBSAgriVest, a unit of UBS AG, the world's biggest money manager. The returns are attracting hedge funds and investment brokers.
Hancock Agricultural Investment Group in Boston purchased $100 million of farmland in the past year, increasing its holdings by 13 percent to $865 million. Macquarie Bank Ltd., Australia's largest securities firm, plans to spend as much as A$1 billion ($775 million) on ranches in Australia for a new agricultural fund.
Pergam Finance, a Paris-based investment company with $1 billion in assets, two years ago started Campos Orientales, a fund that buys farmland in Argentina and Uruguay. The company formed a venture with Bellamar Estancias, owned by Argentina's Hirsch family, that manages 120,000 hectares and plans to raise $70 million for farmland acquisitions.
Australian Pastures
In Queensland, Australia's biggest cattle-grazing state, land rose by about 10 percent to between A$500 ($394) and A$550 an acre in 2006, said Dick Allpass, a rural property consultant at Adelaide-based Elders Australia Ltd.
Orders for food and feedstock from China in the last five years helped boost prime Australian farmland by as much as 300 percent, said Wayne Carlson, general manager for agribusiness at Melbourne-based National Australia Bank Ltd., the nation's largest lender.
``That rise of the last few years is what has made some of these fund managers and investment groups say, `Why hell, why aren't we in this?''' Carlson said.
Price Increases
Average U.S. farm prices increased by 15 percent in 2006, Agriculture Department data show. The cost of buying corn farms in Argentina, the world's second-largest exporter of the grain, jumped 27 percent, according to Buenos Aires industry newsletter Margenes Agropecuarios.
Marc Faber, a Hong Kong-based investor who manages about $300 million, says one of his favorite stocks is Cresud SA, a landowner in Argentina's Pampas region. The shares jumped 63 percent last year. Farmland is ``very inexpensive in a world of inflated asset prices,'' he said in an interview Feb. 4 from Bermuda.
The demand for corn used in ethanol got a boost from U.S. President George W. Bush last month, when he urged a fivefold increase in renewable fuels by 2017. To meet Bush's goal, 12.5 billion bushels of corn would be needed, 19 percent more than was harvested last year in the U.S., the world's biggest producer.
``It is not the investor that is pushing up land prices, it is the surge in corn prices from ethanol demand,'' said Jim Farrell, chief executive officer at Farmers National Co. in Omaha, which manages almost 1.2 million acres of farmland on 3,700 farms. ``Midwest farmland is predicated by the strength or weakness of corn prices.''
Corn futures have jumped 82 percent on the Chicago Board of Trade in the past year. They gained 0.6 percent to $4.32 a bushel in electronic trading as of 3:43 a.m. local time
Less Farmland
The rally is helped by a reduction in the number of acres available for planting. 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, according to the Worldwatch Institute in Washington, which does research on food production. Crop land also is lost because of development and lack of irrigation, the institute said.
``Ethanol is not the only story here -- it is just the one getting headlines,'' said Jeff Conrad, 45, president and managing director for Hancock Agricultural, a unit of Manulife Financial Corp. ``The supply side is the big unknown because we know demand is rising.'' Conrad manages 126,000 acres in the U.S. and 7,000 acres of wine g****s and macadamia nuts in Australia.
U.S. farmland declined by 9.6 million acres, or 2.8 percent, in the two decades ending in 2001, according to the most recent data available from the government.
Farm Bulls
Jim Rogers, the hedge fund manager who predicted the start of the commodity rally in 1999, said global warming will hinder crops and has advised purchasing farmland for at least a decade.
``Because of the disruptions, agricultural prices will go through the roof,'' he told reporters in Melbourne on Feb. 7. ``I am extremely bullish on agriculture.''
To be sure, farmland has seen rallies before that were halted by surging interest rates or plunging commodity prices.
In the three years ending in 1975, prices rose more than 30 percent annually in Iowa, when the cost of fuel surged during the 1973 Arab oil embargo and the former Soviet Union bought record amounts of U.S. corn and wheat to make up for domestic crop losses. U.S. farmers bought more land with borrowed money.
Iowa farmland more than tripled from $482 an acre in 1972 to $2,147 in 1981. After the Federal Reserve boosted interest to 20 percent in 1980 and again in 1981 to curb inflation, farmland prices plunged more than 60 percent from 1981 to 1986.
Interest-Rate Risk
``Sharp interest-rate increases are a risk to farmland appreciation'' by boosting the value of the dollar and hurting U.S. crop exports, Conrad said. ``A sustained drop in crude-oil prices would take the shine off the ethanol market,'' he said.
``Farmland prices are dependent on commodity prices, which are incredibly volatile,'' said Liam Bailey, head of research at Knight Frank LLP, a real estate agent in London that handles about 25 percent of U.K. farmland sales. ``You have to be prepared to ride the ups and downs. You could see a massive reversal in prices.''
Returns from farmland have averaged 10.9 percent annually the last 15 years, the National Council of Real Estate Investment Fiduciaries in Chicago said. The Standard & Poor's 500 Index of stocks has risen 10.7 percent each year, while the return from the Lehman Government Bond Index was 6.3 percent.
Iowa Rising
Home prices fell in half of the cities in the U.S. last quarter, the National Association of Realtors said last week. Prices in 70 U.S. cities including Las Vegas and Washington may drop 10 percent or more between now and 2009 on higher borrowing costs, according to a study by Economy.com, a unit of Moody's Corp.
Land in Iowa, the biggest U.S. producer of corn and home to the most ethanol plants, surpassed $5,000 an acre from a high of $4,200 a year ago, said Monty Meusch, 55, a vice president for Farmers National Co., a property broker and farmland manager in Omaha, Nebraska. A 200-acre Iowa farm increased 14 percent in a month when it sold for $5,700 an acre in October, he said.
In Manhattan, the average apartment increased by 3.2 percent last year, the smallest gain in a decade, to $1.22 million, estimates Miller Samuel Inc., the borough's largest appraiser.
While asking prices soared 62 percent in London's Kensington and Chelsea neighborhoods, the rise in actual sales prices was 16 percent last year to 677,318 pounds ($1.32 million), according to Land Registry and realtor data.
``Three years ago people were skeptical about investing in farmland,'' said Olivier Combastet, founder of Pergam. ``It's become much more sexy.''
He anticipates annual returns of 15 percent in the next five years from his South American land investments.
To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net .
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