Land Commodities

Weekly roundup of the most insightful farmland investment & agribusiness themed reports and whitepapers – 02 September 2013

Each week Land Commodities’ research department scours the internet looking for newly released reports, academic papers and research with relevance to agri-investors. The most notable examples are summarised in a weekly roundup for the benefit of our clients and subscribers. Click on the links below for a summary and free download of any of these reports.

What if the whole supply and demand story behind the agricultural investment thesis is fundamentally floored?

The commonly accepted viewpoint amongst agricultural investors is that rapid economic growth in emerging markets has resulted in increased demand for and consumption of agricultural commodities, and that this increased consumption is the primary driver behind rising commodity prices. But to what extent do economic fact and economic theory really support this view?

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How has farmland performed as an investment before and after the financial crisis?

As this study on US farmland shows, compared to competing investments farmland has historically delivered relatively high mean returns with low variability and low correlation with financial markets, both before and after the 2008 financial crisis. But much of its outperformance has been due to record increases in land values in many parts of the US. An interesting read for those wandering what the risk-return outlook might be in the coming years.

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The relationship between farm size and investment returns

Modern farming technology, especially, the size and capacity of farm machinery, has driven a strong trend of consolidation in the agricultural sector as the financial benefits of economies of scale become more pronounced. This report takes an interesting look at the evolving relationship between farm size and financial returns, providing useful insights into what the future may hold for agricultural investors.

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A look at current farmland values and whether they are supported by rising rental returns

The record returns earned by US farmland investors continue to attract new investors to the asset class even as the pace of land price appreciation sets new records. But how have rents faired in this environment? Most importantly, how have income returns from rent (as a percentage of land value) changed for investors entering the asset class for the first time?

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UK farmland prices: still rising, but for how long?

UK farmland prices have tripled in less than a decade according to the latest Rural Land Market Survey from the Royal Institution of Chartered Surveyors. What’s behind this rise prices and is the trend set to continue?

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The mismatch between rising land prices and lower rental yields in Indiana

Despite the worst drought in over a decade, crop prices in Indiana have continued to rise supported by favourable interest rates, strong farmland demand, and a limited supply of land. But despite increasing, the rise in cash rents has lagged behind land prices, meaning lower rental returns for investors entering the asset class for the first time.

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Another look at agricultural credit conditions and what a change in interest rates might mean for farmland investment returns

Interest rates on both farm operating loans and farm real estate debt are now roughly half their long-term average roughly a third lower than they were immediately preceding the financial crisis. There is little doubt this is having a major impact on net farm income and land prices.

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