Why Jim Rogers is Investing in Farmland

Legendary Wall Street trader and best-selling author Jim Rogers recently offered this unconventional advice: If you want to get rich, you should be investing in farmland.

Don't laugh. Rogers is good at what he does. Really good.

Together with George Soros, he founded the Quantum Fund in the 1970s and posted returns of 4,200% over 10 years. Rogers retired in 1980 at the age of 37, but is still active as a private investor.

Back in 1999, Jim Rogers recommended gold when it was trading at $252 and silver at $4. You know what happened after that.

Now Rogers thinks investing in farmland will pay off in a big way.

"It's the farmers, the producers, who are going to be in the captain's seat when the prices go through the roof," he told The Australian Financial Review.

Food Demand on the Rise

Consumers in places like China and India - where an emerging middle class suddenly can afford a better diet -- are eating more of everything, especially high-protein meat.

But they have a long way to go to catch up to Western levels of meat consumption.

According to Time Magazine, the average American consumes about 250 pounds of meat a year. Meanwhile, the Chinese average roughly 100 pounds a year, while Indians eat less than 10 pounds a year.

As the middle class in these and other emerging markets expand in the coming years, demand for meat will explode.

But to increase meat production, farms will need a lot more grain to feed the livestock. Half of U.S. corn production already goes to feed cattle, pigs and poultry.

A prediction in a recent advertising campaign from Monsanto Co. (NYSE: MON) illustrates the immense demand that's just around the corner. The company said the world's farmers will need to produce more food in the next 50 years than farmers have produced in total over the last 10,000 years.

Soaring demand for grain has already affected the market. Monsanto said global grain consumption has exceeded total production for seven out of the last eight years.

"The world has got a serious food problem," Rogers told Time. "The only real way to solve it is to draw more people back to agriculture."

Milking Profits From Farmland

Meanwhile, new technology over the last 20 years has helped U.S. farmers significantly increase production. Redesigned seeds have increased yields and the use of computers has vastly improved planting techniques.

Such changes have pushed corn production from an average of 91 bushels per acre in 1980 to 152 bushels per acre in 2010. That, along with higher prices, is boosting profits and making farmland dramatically more valuable - and farmers richer.

Net farm income is expected to clock in at roughly $97.1 billion in 2012, the second highest on record according to the USDA.

Meanwhile, the average price for farmland has been rising since 1980, and now exceeds $2,000 an acre. Prices for prime land in some parts of the country have gone as high as $6,000 an acre.

Here's something else to consider.

Farmland typically is held for long periods of time and usually comes on the market only when the owner passes away.

But today the average U.S. farmer is 58 years old. The USDA estimates that over one-third of all farmland owners have less than 15 years left to live.

That aging population represents a window of opportunity for investing in farmland.

Investing in Farmland

Over the last 100 years farmland, based on income and capital appreciation, has consistently delivered positive returns -- with only three brief periods of negative returns (1930s, 1980s, and 2008).

And as the saying goes, they just aren't making any more of it. So a severe imbalance is developing in the supply and demand of farmland.

Farmland is also an opportunity to invest in an asset class not directly correlated to stocks and bonds, and one with significantly less volatility.

Jim Rogers believes investing in farmland is "in its third inning." In other words, there's still plenty of time to get in.

He was recently in Australia to launch a new farmland fund with the goal of raising as much as $350 million to buy farms in New South Wales.

That's fine for Rogers. But how can the rest of us start investing in farmland?

One way is to invest in agricultural futures through Exchange Traded Funds (ETFs) like the PowerShares DB Commodity Index (NYSEArca: DBC). The fund tracks an entire basket of agricultural commodities including corn, soybeans, wheat, cotton, sugar, coffee, cattle and pigs.

Canadian citizens can invest in Agcapita Farmland Investment Partnership, a farmland private equity fund, with significant holdings in Saskatchewan, Alberta and Manitoba. Jim Rogers is actually an advisor to the fund, currently open to retail investors for a minimum investment of $10,000.

You might also take a look at Adecoagro S.A. (NYSE: AGRO), a Luxembourg-based company that owns significant farmland holdings in South America. It owns nearly 500,000 acres of farmland, consisting of 23 farms in Argentina, 13 farms in Brazil, and one in Uruguay.

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