Farmland prices are soaring in 2011. According to a recent New York Times article, Iowa farmland has gone from around $2,000 an acre in 1990 to a whopping $6,000 this year — and it’s still rising. Farmland prices are in fact so high that the Federal Reserve of Kansas City is worried. A 30% year-over-year rise in Nebraska land prices has come from high crop prices, booming farm income and record-low interest rates, according to the KC fed.
It’s no surprise, then, that famed commodity investor Jim Rogers is buying farmland. So is George Soros.
The reasons are clear. The Kansas City branch of the Fed sums it up nicely by crediting booming crop prices — the price of corn has soared more than 60% in the past year or so and soy prices are up more than 20% in the past year to tally a three-year high — and the resultant jump in farm revenue. Few businesses are a sure thing these days other than agriculture.
Another perk for farmland investors is the inflation hedge, since farmland is very closely correlated to the rate of inflation.
So how can you get a share of the farmland boom and cash in on the big business of farming in the U.S. right now? Calling up a real estate agent in the Midwest, of course, is your best way to get a direct play on this trend. But real estate isn’t a very liquid asset and can come with its own unique version of hangups — interest rates, credit markets and other difficulties brought into the harsh light of day thanks to the financial crisis.
So for investors looking for a few alternative ways to plow for profits amid rising farmland prices, consider these three investment options:
BlackRock Inc. (NYSE:BLK) recently announced it had taken a multimillion-dollar position in farmland in several Midwestern states. Sure, it’s just one of many investments for the investment management company. But BLK stock has a 3.6% dividend and a 10-year return of almost 300%. Not bad … though admittedly the -20% performance so far in 2011 is reason for concern.
Buy the Agribusiness ETF
The closest thing to a pure farmland play among exchange-traded funds is the Market Vectors Agribusiness ETF (NYSE:MOO). The MOO fund focuses on agriculture and food companies that feed the farm industry — like seed giant Monsanto (NYSE:MON) and the maker of those iconic green tractors, Deere & Co. (NYSE:DE). Of course, shares of this agribusiness ETF are off 11% so far in 2011 and have lagged the market for about 18 months, so momentum isn’t on your side.
Buy Individual Ag Stocks
If you don’t like the diversified flavor of the farm ETF, then cherry-pick some of the individual farm players. Take, for instance, the previously listed Monsanto. This stock is up 5% so far in 2011 thanks to strong demand for its seeds that are resistant to its Roundup weed killer — meaning farmers can plant crops and spray the weed killer at will without worrying about hurting their veggies. MON has been strong lately; however, it still is way off since its 2008 peaks and is in the red since 2009. But it’s worth noting fiscal 2011 earnings came in at $2.96 per share — up almost 50% from EPS of $2.01 the prior year.
A fourth alternative is coming to market (theoretically) soon, too. Virginia-based Gladstone Land Corp has filed for an IPO. And it could sell as much as $250 million in common stock after its initial public offering. It would be a real estate investment trust, or REIT, that owns two farms in California and leases properties to strawberry growers including Dole Foods (NYSE:DOLE). Dole has used the firm’s farmland since 2004, so the lease is ironclad — and the appreciation of farmland seems likely to continue. The only question is how fast the Gladstone REIT will come to market and allow investors to share in its success.
Jeff Reeves is the editor of InvestorPlace.com. As of this writing, he did not own a position in any of the aforementioned stocks. Write him at firstname.lastname@example.org, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.