Time to Invest in Agriculture

While the housing and financial stock markets have seen their fair share of ups and downs throughout the years, agriculture stock has remained steady and is currently increasing.

"The crop farming sector has been relatively profitable in the past several years while the general economy has gone through a great deal of turmoil. As financial difficulties became apparent in 2008, most publicly traded companies saw their stock prices decline," said Gary Schnitkey, ag economist, University of Illinois.

Investing in the agriculture industry can help capitalize farms and fertilizer producers, increase food supplies and generate profits in the process. We’ve already seen that the prices of soybeans, wheat and corn are increasing and major fertilizers like phosphate, sulfur and ammonia have been increasing in price since mid-2010.

Currently, the world is seeing a demand for quality food from rapidly developing countries such as Brazil, India and China. In addition, the global population in emerging markets continues to increase with a demand for more and better-quality food.

According to Investopedia, the rationale for increased agricultural stock prices is that farmers will need the best seeds, fertilizers, animal feed and other agricultural inputs to produce the largest yields possible. Therefore, the companies that are selling products to the farmers should see an increase in their stocks.

An agriculture.com article reports that since 2008, market-value changes have been greater for AgIndex, an index that represents the market value of agriculture companies, than for the S&P 500, an index that tracks the market values of 500 large companies in the United States. Like crop farms, many agricultural firms have performed well in the period of increased commodity prices.

The AgIndex comprises a group of 21 publicly traded companies that fit into one of five sectors (agriculture.com):
  1. Fertilizer: Companies involved in the manufacturing and distribution of fertilizers (Agrium Inc., CF Industries, Intrepid Potash, Mosaic Company, and Potash Corporation)
  2. Equipment: Companies involved in the manufacturing of agricultural equipment (AGCO Corporation, Art’s Way Manufacturing Company, Caterpillar Inc., CNH Global, Deere & Company, Kubota Corporation and Lindsay Corporation)
  3. Seed and genetics: Companies that produce seeds (Monsanto and Syngenta)
  4. Crop protection: Companies that produce products aiding plant growth (Dow Chemical, DuPont and FMC Corporation)
  5. First processor: Companies that are the first processors of corn and soybeans (Andersons, Archer Daniels Midland, Bunge and Corn Products International)
An article at www.dailyfinance.com reports that investors note that expanding populations that tend to shift to more resource-intensive food products are fueling agricultural demand. In a presentation this past year, hedge fund Passport Capital stated that the world population "is predicted to increase by more than one-third, to a staggering nine billion people by 2054."

"We believe the circumstances of the current global recession—including tight credit and reduced asset values—have created a particularly attractive entry point for investors in the agriculture industry," said a representative from Passport Capital.

As the need for feeding more and more people throughout the world continues to increase, the outlook for agriculture investments moving forward will be favorable.

Have you invested in any agriculture stocks? What has been your experience? Do you have any recommendations to share?

Photo obtained from: getmyhomesvalue.com

Disappearing farmland?

There’s no doubt that, because of technological advancements, agricultural production requires less land than ever to produce historically more food, feed, fiber and fuel.

However, some people believe that urban sprawl—the spreading outward of a city and its suburbs to its outskirts to low-density and auto-dependent development on rural land—is removing necessary farmland.

According to the Heartland Institute, a national nonprofit research and education organization, since 1950, an area the size of Texas plus Oklahoma (or almost as large as France plus Great Britain), has been removed from agricultural production in the United States.

What constitutes high-quality farmland?

The American Farmland Trust (AFT) defines it as land most suitable for producing food, feed, forage, fiber and oilseed crops, as well as land used to grow vegetables, grapes and horticultural crops, including fruits, nuts and berries that have unique soil and climatic requirements. Less than one-fifth of U.S. land is high-quality.

AFT is the nation’s largest private, nonprofit conservation organization dedicated to saving farm and ranchland throughout America and is one such critic of urban sprawl. ATF cites that America loses an acre of farmland every minute. The U.S. has lost more than six million acres of farmland since 1997—amounting to the size of Maryland. ATF’s taglines are, “No farms, no food,” and “Saving the land that sustains us.”

There are several government-regulated programs designed to safeguard farmland.

Programs Protecting Farmland (ATF)
  • Agricultural District Programs: special farmer-organized areas where commercial agriculture is encouraged and protected
  • Agricultural Conservation Easements: preserve landowners’ right to use their land for farming, ranching and other purposes that do not interfere with or reduce agricultural viability
  • Purchase of Agricultural Conservation Easement (PACE) Programs: pay property owners to protect their land from development, known also as purchase of development rights (PDR)
  • Executive Orders: document the importance of agriculture and farmland to their states’ economies, environment and culture
  • Growth Management Laws: control the timing and phasing of urban growth and the types of land use that will be permitted
  • Right-to-Farm Laws: protect farmers and ranchers from nuisance lawsuits
  • Agricultural Protection Zoning: designates land use; a tool of local government
Farm and Ranch Lands Protection Program in Ohio (National Resources Conservation Service)
  • Of Ohio’s 26,206,720 acres, there are 11,597,600 acres classified as prime farmland
  • Ohio ranks 39th in the nation in total state land area and fifth in the nation in percent of state land area that is classified as prime farmland
  • Ohio lost more acres of prime farmland during the period 1987 to 1997 than any other state with the exception of Texas
  • Since 1987, Ohio has lost 627,100 acres of farmland, of which 352,600 acres were prime farmland. The average size of an Ohio county is 300,500 acres, during that 10-year span, Ohio lost more than one county’s area of prime farmland
  • In Fiscal Year 2010, $3,949,414 was awarded to five different entities including state or local governments, as well as non-governmental organizations, for purchasing easements using their farmland protection programs
  • $25,986,358 has been provided to such entities in Ohio using protection programs
Some people don’t consider urban sprawl a threat to our national farm and ranchland.

Wendell Cox, a visiting professor at Conservatoire National des Arts et Metiers, Paris, is one of them. He says that urbanization is exaggerated:

“According to the U.S. Department of Agriculture, rural, large-lot residential development (nonagricultural) covered 40 percent more land than all of the nation's urbanization in 2000. These parcels represent "scattered single houses on large parcels, often 10 or more acres in size." Since 1980 the increase in this rural residential development has been one-third greater than the land area occupied by all of the urban areas in the nation greater than 1,000,000 in population. If there is a serious threat to agriculture, it is from overzealous regulation that puts farmers at risk.”

A CNN story stated, “The National Center for Policy Analysis report cites figures which show that farmland loss has been moderating since the 1960s, falling from a 6.2 percent decline in farmland per decade in the 1960s to a 2.7 percent decline in the 1990s.”

Whether one considers urban sprawl a threat to agriculture or not, it cannot be denied that our reliance on continued technology improvements will lessen our need for as much land to produce the agricultural products on which we rely, though technology is not a cure-all.

Do you believe that urbanization is affecting agriculture? Have you experienced urban sprawl near your home?

Photo obtained from: cartoonstock.com

Tricks of the trade: Buying and selling farm equipment online

While it’s common for farmers to buy and/or sell their farm equipment at a local auction, a local dealer or in the classified ads of their local newspapers, the Internet is now becoming one of the best places to look for agricultural equipment.

As with all things, there are some important factors to consider before purchasing or selling agricultural equipment online. Below, farmers share tips about how to use the Internet to sell and buy equipment.

Selling farm equipment online (Farm Industry News)
  • Good photos: Bad photos make for poor sales. It is important to make sure that the lightening is good and to show a variety of photos, such as tires, chains, wear points, paint and general appearance.
  • Clean equipment: A good wash job on equipment can generally produce a 10 percent greater return. Once the equipment is clean, place it in a nice location like a clean shed on a well-kept farm (This is great place to take a good photo).
  • Price: Price equipment reasonably well (check current auction information to help price equipment). In most instances, a farmer is never going to pay the asking price.
  • Equipment details: The history of the machine is important. Make sure to provide all of the information that you would provide in a classified ad. Also, don’t forget to provide a way for farmers to contact you with questions.

Buying farm equipment online (Farm Management Software)
  • Research: Compare websites for farm equipment — look at the quality of the products, the services they provide and their prices. These are some of the most important aspects to consider when purchasing quality agricultural equipment.
  • Price: Don’t look for the least expensive prices because they could be the wrong choices. Instead, look for well-known brands, as they usually produce high quality products.
As more farmers go online to buy and sell their farm equipment, it will be interesting to see what new online trends will surface. Could it be that more traditional methods to selling and buying farm equipment, like auctions and classified ads, will fade away?

Do you know a farmer who has bought or sold farm machinery online? Did they have a positive or negative experience?

Photo obtained from: farmmanagementsoftware.org/tips-to-buying-used-agricultural-equipment

Energy Farming

Though the traditional forms of agriculture, crop and animal farming aren’t the only farm sectors anymore.

Feedstock farming – growing varying cellulosic, non-food material such as miscanthus and switchgrass, which is then fermented for conversion to biomass pellets and fuel – is emerging as a new industry market.

Biomass comprises several types of herbaceous grasses that are converted into fuel using special processing equipment. Pellets are a byproduct of the conversion and can be used as livestock feed and to generate electricity.

Farmers receive a price based upon each feedstock’s net-energy value and moisture content. According to FarmEnergy.org, 1 ton of pellets contains as much energy as 190 gallons of propane.

The Biomass Crop Assistance Program (BCAP), instituted in the 2008 Farm Bill, was designed to stimulate new crops for renewable energy feedstocks. It demonstrates the importance of this emerging ag market.

“Farmers are the foundation to drive [the new biomass energy] technology — not technology driving farmers,” said Steve Flick, president of Show Me Energy’s (the first U.S. producer-owned biomass cooperative) board of directors.

The Biomass Crop Assistance Program (BCAP), administered by the Farm Service Agency, provides financial assistance to owners and operators of agricultural and non-industrial private forest land who wish to establish, produce, and deliver biomass feedstocks. BCAP provides two categories of assistance:
  • Matching payments may be available for the delivery of eligible material to qualified biomass conversion facilities by eligible material owners. Qualified biomass conversion facilities produce heat, power, biobased products, or advanced biofuels from biomass feedstocks.
  • Establishment and annual payments may be available to certain producers who enter into contracts with the Commodity Credit Corporation (CCC) to produce eligible biomass crops on contract acres within BCAP project areas.
BCAP-qualified producers are eligible to receive up to 75 percent of the cost of establishing and planting biomass crops within a BCAP project area. The USDA provides annual payments to compensate for lost opportunity costs until these crops are established and provides financial assistance for the collection, harvest, storage and transportation of biomass crops by matching the amounts paid to producers by the biomass conversion facility, up to $45/dry ton.

Not only does feedstock farming impact the farmer, it significantly impacts the entire economics of the business supply chain. Biomass conversions creates hundreds of direct and ancillary jobs in rural economies.

“Hauling massive amounts of feedstock long distances has a tremendous effect on the economy,” said Steve Carter, director of Iowa State University’s Research Park in Ames.

Some farmers are participating in feedstock farming to power their own equipment. This may become an increasing trend as oil prices continue to escalate.

A farmer interviewed for a recent Herald-Review story, said that he’s found using 1 ton of biomass pellets to cost $165, compared to 149 gallons of propane for $387.40 and 101 gallons of fuel oil for $383.80.

In Ohio, Aloterra Energy develops biomass conversion facilities by handling both feedstock development and its conversion to fuel using advanced biofuel production. One biomass conversion facility is currently in operation in Conneaut, Ohio, and the company is in the process of expanding its network of farmers for energy-crop production.

As fuel and other energy costs continue to increase, so too will the interest in feedstock farming. It will be interesting to witness how farmers react to this emerging new-income opportunity.

Photo obtained from: farmenergy.org