Wall Street Eyes Farmland - Investors Aim to Tap Ag's "Super Cycle" [View All]

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In a New York City ballroom actor Michael Douglas made famous with his "greed is good" speech in the movie "Wall Street," 400 pension and fund managers, investment bankers and some of the world's largest farmers gathered this week to discuss the latest hot prospect in institutional investment: farmland.

The Who's Who of Wall Street financiers now interested in channeling billions of new dollars into cropland ownership in the U.S., South America, Eastern Europe and even Africa include heavy hitters like UBS, Franklin Templeton, Morgan Stanley, TIAA-CREF, Rabobank and John Hancock.

Underlying the investment frenzy is the knowledge that global food demand will double by 2050 and skepticism that seed companies and agribusiness can engineer higher yields to solve the problem. In that case, millions of new acres will need to be brought into cultivation and current cropland pushed to its max for productivity, which is why investors are interested in both farmland and virgin land that can be planted to crops. The need to bring more land into soybean production is especially acute as China and India improve their diets and yield advances have lagged corn.

"People really do believe agriculture is headed for a super cycle," said Kenneth Van Heel, global director of Dow Chemical's pension fund, which is stepping up its land investments, primarily in the U.S. "Across the industry, there are so many investments to be made."

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A soon-to-be-released study by the World Bank found that institutional investors already have announced plans to acquire up to 125 million acres in global farmland, about the land mass of Germany. In the big scheme of things, that might not sound like a lot, but the issue is that it's just the beginning, said John Lamb, World Bank agribusiness team leader.

Foreign ownership of land is so sensitive in some countries that news that an Asian corporation wanted to buy 3.25 million acres in Madagascar in 2008 led to riots, the death of 130 people and the overthrow of the government. Now the World Bank is trying to develop ethical standards for investors so they don't turn Third World countries into neo-colonial plantations. "It's like the California gold rush. The initial investors are not the most savory characters in the world," Lamb said.

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"We've waited 40 years for something like this," said Tom Hertz, of Nevada, Iowa-based Hertz Farm Management as he eyed the enthusiastic crowd during a coffee break. But he doubts outsiders will hike U.S. farmland values as high as some expect, since institutions need cash returns of about 5 percent and rarely can afford to outbid established farm operators in prime grain belt locations. Farmers still buy and own the vast majority of America's farmland, he said. Institutions like to step in to buy only when there aren't two bidders at an auction.

"Maybe they'll just keep land from the price correction everyone in agriculture's been expecting," he said.
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this is as horrible as the gulf disaster!