Agriculture Investment - Useful Information for Investors

The US produces 40% of the world's corn. On the 30th of June the US Department of Agriculture (USDA) made two significant announcements, which together with the news in July that Russian corn production was down 30% and exports from the country had been halted, made for great news for those investors who have chosen to invest in agriculture with a well-placed farmland investment.

The announcements from the USDA were important in that they noted both corn production was down, and also that fewer acres had been sown to corn. These factors had a marked effect on values, both of corn itself and therefore also of the land used to produce it.

I believe that those of us choosing to invest in agriculture by way of commodity trading will always enjoy such peaks, as well as the troughs, both typical in commodities markets notorious for short term cyclical volatility which is driven in turn by rising and falling supply levels. Investing in farmland, the underlying asset that produces such commodities allows the investor to take advantage of the highs, whilst smoothing out any lows, and at the same time enjoy long term capital growth as the expanding population drives demand for more food.

The long term fundamentals supporting agriculture investment are impressive. Around 30% of all corn produced in the US now goes to biofuels, and this has contributed to the fact that after one of the largest harvests in recorded history there is still a global shortfall and China recently became a net importer of corn. After decades of self-sufficiency, and despite growing 20% of world corn, China can no longer grow enough food to feed their growing population, which is another fundamental driver that will lead to the value of good quality farmland rising as such countries scramble to buy up land overseas to ensure their own food security. The Saudis, Qataris and other nations such as South Korea are all buying up farmland in Australia and Latin America right now.

When all is said and done, we are staring a potentially global food security concern right in the face, and the only way to sure up supplies and give agricultural producers the capital to invest in improved infrastructure and new technologies, is to pay more for the produce they grow, and as the land produces a greater annual revenue, thus does the value of that land rise, making agriculture investments an ideal asset class under current economic circumstances.

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