Saturday, June 4, 2011

Perennial Demand for Food

What's the hottest investment these days? You may be surprised to consider that farmland may be one of them.

Chief factors include:

- land prices (in Nebraska, as an example) are up by 20% this year
- hedge funders have been talking about farmland
- crop prices are up
- demand for food is not going away
- farm technology has greatly improved yield, planting, harvesting efficiencies

"So is farmland overvalued now? Here's the math: In Nebraska where I was, the farmland prices have reached about $6,000 an acre. Based on the current price of fertilizer and seeds, the farmers told me, it costs about $4 to grow a bushel of corn. That means at current prices, each bushel produces a profit of $3.50. Farmers these days get about 200 bushels per acre of corn. That means a $6,000 investment produces an annual income of about $650, which is an income yield of 10.5%. That's more than double the earnings yield of the S&P 500. And it is three times the yield you would get with 10-year Treasury notes. So by that measure farmland doesn't look overvalued."

See full article at Time.