The Food Chain
Food Is Gold, So Billions Invested in Farming
Emergent Asset Management
A cattle farm in South Africa is among the holdings of Emergent Asset
Management.
http://www.nytimes.com/2008/06/05/business/05farm.html?_r=1&em&ex=1212984000&en=3920ed5de889ff2b&ei=5087%0A&oref=slogin
By DIANA B. HENRIQUES
Published: June 5, 2008
Huge investment funds have already poured hundreds of billions of dollars into
booming financial markets for commodities like wheat, corn and soybeans.
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The Food Chain
Production and Motivation
Articles in this series are examining growing demands on, and changes in, the
world’s production of food.
Previous Articles in the Series »
Related
Leaders Speak of Their Own Issues at a Conference Addressing Food Shortages
(June 5, 2008)
Monsanto Seeks Big Increase in Crop Yields (June 5, 2008)
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Ben Garvin for The New York Times
Andrew J. Redleaf, head of the hedge fund Whitebox Advisors, bought several
grain elevators from ConAgra and Cargill.
But a few big private investors are starting to make bolder and longer-term
bets that the world’s need for food will greatly increase — by buying farmland,
fertilizer, grain elevators and shipping equipment.
One has bought several ethanol plants, Canadian farmland and enough storage
space in the Midwest to hold millions of bushels of grain.
Another is buying more than five dozen grain elevators, nearly that many
fertilizer distribution outlets and a fleet of barges and ships.
And three institutional investors, including the giant BlackRock fund group in
New York, are separately planning to invest hundreds of millions of dollars in
agriculture, chiefly farmland, from sub-Saharan Africa to the English
countryside.
“It’s going on big time,” said Brad Cole, president of Cole Partners Asset
Management in Chicago, which runs a fund of hedge funds focused on natural
resources. “There is considerable interest in what we call ‘owning structure’ —
like United States farmland, Argentine farmland, English farmland — wherever
the profit picture is improving.”
These new bets by big investors could bolster food production at a time when
the world needs more of it.
The investors plan to consolidate small plots of land into more productive
large ones, to introduce new technology and to provide capital to modernize and
maintain grain elevators and fertilizer supply depots.
But the long-term implications are less clear. Some traditional players in the
farm economy, and others who study and shape agriculture policy, say they are
concerned these newcomers will focus on profits above all else, and not share
the industry’s commitment to farming through good times and bad.
“Farmland can be a bubble just like Florida real estate,” said Jeffrey
Hainline, president of Advance Trading, a 28-year-old commodity brokerage firm
and consulting service in Bloomington, Ill. “The cycle of getting in and out
would be very volatile and disruptive.”
By owning land and other parts of the agricultural business, these new
investors are freed from rules aimed at curbing the number of speculative bets
that they and other financial investors can make in commodity markets. “I just
wonder if they need some sheep’s clothing to put on,” Mr. Hainline said.
Mark Lapolla, an adviser to institutional investors, is also a bit wary of the
potential disruption this new money could cause. “It is important to ask
whether these financial investors want to actually operate the means of
production — or simply want to have a direct link into the physical supply of
commodities and thereby reduce the risk of their speculation,” he said.
Grain elevators, especially, could give these investors new ways to make money,
because they can buy or sell the actual bushels of corn or soybeans, rather
than buying and selling financial derivatives that are linked to those
commodities.
When crop prices are climbing, holding inventory for future sale can yield
higher profits than selling to meet current demand, for example. Or if prices
diverge in different parts of the world, inventory can be shipped to the more
profitable market.
“It’s a huge disadvantage to not be able to trade the physical commodity,” said
Andrew J. Redleaf, founder of Whitebox Advisors, a hedge fund management firm
in Minneapolis.
Mr. Redleaf bought several large grain elevator complexes from ConAgra and
Cargill last year for a long-term stake in what he sees as a high-growth
business. The elevators can store 36 million bushels of grain.
“We discovered that our lease customers, major food company types, are really
happy to see us, because they are apt to see Cargill and ConAgra as
competitors,” he said.
The executives making such bets say that fears about their new role are
unfounded, and that their investments will be a plus for farming and,
ultimately, for consumers.
“The world is asking for more food, more energy. You see a huge demand,” said
Axel Hinsch, chief executive of Calyx Agro, a division of the giant Louis
Dreyfus Commodities, which is buying tens of thousands of acres of cropland in
Brazil with the backing of big institutional investors, including AIG
Investments.
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