Invest In Agriculture

Invest In Agriculture- Five Reasons To Start Today

I can think of no better asset to own during any kind of financial crisis than farmland or investing in agriculture stocks.

In some ways, farmland is even better than gold or silver. At least farmland is an intrinsically useful thing. It provides a tangible yield in the form of good things from the earth. We all have to eat. As consumers trim their sails, they ‘ll give up a lot before they give up their calorie intake. In fact, worldwide, the per capita calorie intake is likely to rise, while quality soil will become a scarce commodity. Altogether, I see five big reasons why agriculture investments are as good as green gold.

Invest In Agriculture: Reason #1
Grain inventories are falling to their lowest levels in more than 40 years

Obviously, we can’t continue to dip into inventories. The natural response you would expect to see is rising prices for grains and for the farmland that produces them. Global grain inventories, drought pending, are expected to rise this year, but will still remain well below historical level.

The big thing to keep your eye on here is stocks-to-use ratio. That compares the amount we have on hand to the amount we’re using. The higher the number, the closer we are to having fully stocked granaries. In the case of big commodities like corn, wheat and soybeans, the cupboard’s pretty bare. Based on USDA numbers, the stocks-to-use ratio for 2008-2009 looks to be the second lowest in history.

U.S. ending stocks are projected to nearly double, going from 7 million metric tons to nearly 14 million metric tons. Many countries, even grain powerhouse Argentina, are still holding onto local supply by restricting exports.

Mark McLornan made this comparison in the May issue of Marc Faber’s Gloom Boom & Doom Report: Investing in agriculture today will be like investing in the oil sector in 2001-2002. (If you’ll remember, that’s when oil raced up to $143 a barrel from its $30 low.) Right now, this sector remains locked in underinvestment, so there’s opportunity here, considering the case of future demand.

Invest In Agriculture: Reason #2
Grain consumption is on the rise

The world consumes, on average, 2,600 bushels of grain crop per second. That’s almost twice what we ate back in 1974. And that amount could easily double to 5,200 bushels per second over the next 20 years. The amount of pressure on the global food supply network is enormous. You can see the steep downward trend in wheat supply in the chart below.

Why are we eating so much more grain? The big factor here is meat. Hundreds of millions of people in China and India are joining the middle class. As people get wealthier they eat more meat. And more meat requires more grains to feed cattle and hogs. It takes 10 pounds of grain to produce one pound of meat. Because of that, most of the demand growth for coarse grain and oilseed meal will come from livestock in developing economies or the countries feeding them. So long as the middle class expands, you can be sure meat and grain consumption will follow.