This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Four Reasons Farmland May Be the Investment of the Decade

By Igor Zhitnitsky and Victor German

NEW YORK ( TheStreet) -- Over the last several years, U.S. farmland prices have seen astounding gains, outperforming most other asset classes by a lot and leading some to speculate that farmland is the latest in a series of asset bubbles set to burst.

But while the run-up in agricultural land is cooling off for the moment and the market may be ripe for a temporary pullback, the overall trend is fundamentally positive. Here are four reasons the long-term outlook for U.S. agricultural land is strong:

Foreign demand for meat: The rapidly expanding middle class of the developing world has a growing appetite for meat. While China has been able to meet its own demand, its grain production capacity is inadequate to feed its livestock, which cannot be sustained on grazing alone. Per-acre grain productivity is much lower in China than in the West, and so the country has turned to the U.S. and other large producers for feed grains.

This foreign appetite has led to a sharp increase in demand for corn and soybean-producing land in the U.S., and that pressure will only increase as the Chinese and other developing world consumers continue to increase their meat consumption. That points to the increasing importance of agricultural land.

Historically low grain supplies: The 2012 drought showed that supplies of corn and other grains are unusually low. Average stocks-to-use ratios -- an industry standard for measuring the amount of supply cushion available to the market -- is historically low and has been trending down over the decade. That indicates that growth in demand is generally outpacing supply, and price shocks like last year's will likely become more commonplace.

Historically low debt levels: During the 1980s, when farmland did go boom and then bust, the market saw high levels of debt. Farmers racked up loans and rushed to buy out their neighbors' properties before prices went any higher, leading to a crash in land values when grain prices faltered.

In this decade, however, farmers' debt levels are very low and stable. In addition, agricultural lending institutions and Farmer Mac (AGM) have heeded lessons learned from the 2008 credit crisis and kept lending practices on the conservative side.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $112.12 0.00%
FB $93.24 0.00%
GOOG $643.61 0.00%
TSLA $220.69 0.00%
YHOO $32.52 0.00%


Chart of I:DJI
DOW 17,084.49 +33.74 0.20%
S&P 500 2,014.89 +15.91 0.80%
NASDAQ 4,830.47 +19.6820 0.41%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs