Farmland from Iowa to Argentina is rising faster in price than apartments in Manhattan and London for the first time in 30 years.
Demand for corn used in ethanol increased the value of cropland 16 per cent in Indiana and 35 per cent in Idaho in 2006, government figures show. The price of a Soho loft appreciated only 12 per cent, while a pied-a-terre in Islington near London's financial district gained 11 per cent, according to realtors.
Farmland returns "will take a quantum leap over the next 18 months," after corn prices surged to a 10-year high in February, according to Murray Wise, the 58-year-old chairman and chief executive officer of Westchester Group Inc. in Champaign, Ill., who oversees $460-million (U.S.) of land investments.
Mr. Wise, who was born on a Canadian farm and now manages 85,000 acres, said prices in the U.S. Midwest may gain 12 per cent a year through 2017. Farmland rose in value in 34 of the last 37 years, according to data compiled by UBS AgriVest, a unit of UBS AG, the world's biggest money manager. The returns are attracting hedge funds and investment brokers.
Hancock Agricultural Investment Group in Boston purchased $100-million of farmland in the past year, increasing its holdings by 13 per cent to $865-million. Macquarie Bank Ltd., Australia's largest securities firm, plans to spend as much as $1-billion Australian ($920-million Canadian) on ranches in Australia for a new agricultural fund.
Pergam Finance, a Paris-based investment company with $1-billion (U.S.) in assets, started Campos Orientales, a fund that buys farmland in Argentina and Uruguay two years ago. The company formed a venture with Bellamar Estancias, owned by Argentina's Hirsch family, that manages 120,000 hectares and plans to raise $70-million for farmland acquisitions.
In Queensland, Australia's biggest cattle-grazing state, land rose by about 10 per cent to between $500 (Australian) and $550 an acre in 2006, said Dick Allpass, a rural property consultant at Adelaide-based Elders Australia Ltd.
Orders for food and feedstock from China in the last five years helped boost prime Australian farmland by as much as 300 per cent, said Wayne Carlson, general manager for agribusiness at Melbourne-based National Australia Bank Ltd.
"That rise of the last few years is what has made some of these fund managers and investment groups say, 'Why hell, why aren't we in this?' " Mr. Carlson said.
Average U.S. farm prices increased by 15 per cent in 2006, Agriculture Department data show. The cost of buying corn farms in Argentina, the world's second-largest exporter of the grain, jumped 27 per cent, according to Buenos Aires industry newsletter Margenes Agropecuarios.
Marc Faber, a Hong Kong-based investor who manages about $300-million (U.S.), says one of his favourite stocks is Cresud SA, a landowner in Argentina's Pampas region. The shares jumped 63 per cent last year. Farmland is "very inexpensive in a world of inflated asset prices," he said in a Feb. 4 interview.
The demand for corn used in ethanol got a boost from U.S. President George W. Bush last month, when he urged a fivefold increase in renewable fuels by 2017. To meet that goal, 12.5 billion bushels of corn will be needed, 19 per cent more than was harvested last year in the U.S., the world's biggest producer.
"It is not the investor that is pushing up land prices, it is the surge in corn prices from ethanol demand," said Jim Farrell, chief executive officer at Farmers National Co. in Omaha, which manages almost 1.2 million acres of farmland on 3,700 farms.
Corn futures have jumped 82 per cent on the Chicago Board of Trade in the past year. The rally is helped by a reduction in the number of acres available for planting. About five million to eight million hectares (12 to 20 million acres) of the world's total of 1.5 billion hectares of farmland go fallow each year because of deteriorating quality, according to the Worldwatch Institute in Washington, which does research on food production.
U.S. farmland declined by 9.6 million acres, or 2.8 per cent, in the two decades ending in 2001, according to the most recent government figures. Jim Rogers, the hedge fund manager who predicted the start of the commodity rally in 1999, said global warming will hinder crops and has advised purchasing farmland for at least a decade.
Returns from farmland have averaged 10.9 per cent annually the last 15 years, the National Council of Real Estate Investment Fiduciaries in Chicago said.
In Manhattan, the average apartment increased by 3.2 per cent last year, the smallest gain in a decade, to $1.22-million, estimates Miller Samuel Inc., the New York borough's largest appraiser.