Charlie and Rachel (names changed – but true story) had been farming for 30 years. They were in partnership with five of Charlie’s brothers. Market and production challenges unfolded many years in which cost of production exceeded income. Like all farmers, losses resulted in un-payable debts. The time had come to sell the farm.
It wasn’t a big farm – 1,500 acres – but it had irrigation and water rights. Surrounded by a number of mega farms (15,000 to 20,000 acres), there was no farmer able to step up and buy the farm. However, word was out there was $100 million dollars, from pension and other funds, scouring the state to buy farmland. In the end, top dollar was paid and the farm sold to Alaska Teachers Pension Union.
Total retirement assets in the U.S. now total $14 trillion with 2/3 in equities (stock) and 1/3 in cash (money markets). Employer pension funds in the U.S. are growing (more contributions than withdrawals) to the tune of $1 trillion a year.
Rarely acknowledged is that in today’s world there are more dollars looking for an investment than there are investment opportunities. This is what fueled the real estate bubble that burst in 2008. Trillions of dollars, with not enough places to go, will create risk taking
The preferred collateral, for lending and investment, is real estate. This means some form of real estate will always be targeted when there are more dollars to invest than there are investment opportunities.
While the losses in residential real estate are still in our minds, big dollars are chasing another form of real estate – farmland. This time, it is more than just investors looking for farmland. There are billion dollar checkbooks from China and Middle-East nations who have more people than their agricultural resources can feed.
Relying on global markets for food imports has proven unreliable as speculators can artificially pump up prices. Experience has taught that food security lies in owning farmland and agricultural assets. With an abundance of investment dollars out there plus mega-population nations looking to secure farmland, the farmland grab is in full swing. We’ll have more stories about the farmland grab throughout the year.
Estimates are that it takes 4 acres to produce the meat and dairy-rich diets that Americans are used to. With global populations are growing by 70 million people a year, China and India are moving their diets up the food chain. Where is the world going to find 250 million new acres of farmland every year without further compromising rainforests?
As food costs increase, other venues begin to become more viable including urban farming, vertical gardening, container gardening, rooftop gardening, vacant-lot farming and backyard gardening.