tag:blogger.com,1999:blog-1424175490224882611.post2492905536920753116..comments2023-02-20T02:38:41.577-08:00Comments on Economic Resources: Agricultural InflationUnknownnoreply@blogger.comBlogger1125tag:blogger.com,1999:blog-1424175490224882611.post-17946954187409015592008-09-28T17:46:00.000-07:002008-09-28T17:46:00.000-07:00The equity and bond markets have benefited from a ...The equity and bond markets have benefited from a long period of low inflation, but ongoing and massive central bank liquidity injections point to a far less benign environment of elevated inflation ahead. Research by our firm, Agcapita Farmland Investment Partnership (Calgary, Canada based agriculture private equity firm) shows investors must be prepared to rotate into asset classes with different characteristics. <BR/> <BR/>During the last commodity bull market & high inflation period in the 1970’s, equities materially underperformed farmland. Western Canadian farmland went from around $100/acre to $550/acre (550% total return and 176% in inflation adjusted terms), cash held in a money market account barely kept ahead of inflation (6% inflation adjusted return) and the S&P 500 index returned less than 2% per year (a loss of almost 50% in inflation in adjusted terms) <BR/> <BR/>We believe the world is still in the early stages of this current commodity bull market. When agriculture commodities prices are compared against their previous inflation adjusted highs they are significantly discounted implying scope for further increases:<BR/> Corn is US$ 5/bushel currently compared to US$16/bushel in 1974, <BR/> Wheat is US$ 7/bushel currently compared to US$27/bushel in 1974 <BR/> Canadian farmland is C$ 660/acre currently compared to C$1,100/acre in 1981<BR/><BR/>Agcapita’s investment team has over 40 years private equity and fund management experience and over $1 billion in total career transactions. The team currently manages a group of private equity funds with almost CAD$ 100 million of assets under management and previously managed a group of emerging market funds with almost C$500 million in assets for one of the largest banks in Europe. <BR/><BR/>The Canadian farmland investment premise is driven by several key points: <BR/><BR/>1. Canadian farmland is high quality: Canada is the third largest wheat exporter in the world and in aggregate one of the largest agricultural producers in the world. The three western Canadian provinces alone have approximately 135 million acres of farmland and produce approximately 20 million tons of wheat a year.<BR/><BR/>2. Canadian farmland is low cost: Agcapita believes Saskatchewan farmland in particular is an undervalued asset. With an average price of $390 per acre, Saskatchewan farmland is some of the least expensive in the world. The prices in Alberta are almost 3 times higher than Saskatchewan at an average of $1,000. <BR/><BR/>3. Canada has world class farming infrastructure: Unlike investing in farmland in emerging markets such as Argentina, Brazil or Russia, Canadian farmland is supported by first world storage, processing, and shipping infrastructure. This infrastructure is extremely costly to reproduce.<BR/><BR/>4. Canada has low political risk: Unlike emerging markets, Canada lacks significant political risk. Canadian farmland owners benefit from a transparent and enforceable title system with no material risk of de jure or, worse yet, de facto expropriation. See recent agriculture export tariffs in Argentina.Agcapita Farmland Investment Partnershiphttps://www.blogger.com/profile/17474649887529275254noreply@blogger.com