Farm Expert Taylor to Moneynews: US Farmland ‘Still Very Good Investment’ Despite Drought

Tuesday, 21 Aug 2012 12:54 PM

By Forrest Jones and John Bachman

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Corn prices may have surged 60 percent this year due to a crippling drought, but investors can find more long-term opportunities in agriculture, said John Taylor, national executive for the Farm & Ranch Management Group at U.S. Trust, Bank of America Private Wealth Management.

Demand will continue to rise while supply will hold steady or even taper off a bit, which makes farmland a good long-term play on agriculture.

"We've got clients that are invested long-term in U.S. farmland," Taylor told Newsmax.TV in an exclusive interview. "We think that's still a very good investment. It's not a one-year period. You look at the droughts this year and you look at the floods we had last year and, as we know, weather is unpredictable."

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"The long-term trend for food prices we see in the world is an upward trend just based upon the demand that is out there. We are still very bullish."

Demand will increase as populations grow as well as their overall economies and purchasing power, with per-capita gross domestic product (GDP) figures expected to climb in key emerging markets.

"The main driver is going to be the increase in global demand and that's twofold. We've got a world population that continues to increase and more specifically, we've got increasing per-capita GDPs in a lot of the emerging economies, which is well known — China, India and behind them Indonesia, Malaysia, Vietnam and Thailand," Taylor said.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

"So in all of those emerging economies where you've got per-capita GDP increasing and population increasing, that is what fueled demand. So what we are seeing is the demand side continues to move, but unfortunately on the supply side, we are a little more limited."

There's only so much arable land in the world and while gains in seed and farming technology can improve yields, supply won't keep pace with demand.

"I think that the seed companies and the equipment companies will continue to make strides and look for ways that will increase the productivity that you can get from an acre of land, but long-term we still see that the supply probably doesn't keep up with demand."

Despite climbing corn prices at home, the United States will see benefits over the long term due to its exporting capacity.

"We are exporting a lot of these commodities to other countries, so our balance of payments on the 'ag' side will remain positive and overall that's got to be a good thing for the economy," Taylor said.

Food prices, meanwhile, will rise during the next several months thanks to the impacts the drought has had on crop yields, though expect supermarket prices to climb 6 percent tops, as the price of corn in futures markets doesn't move in unison with food costs.

"The majority that we pay at the supermarket really relates to the processing of the goods, the transportation costs and the other factors outside of just the raw material costs," he said.

"I think you'll probably see it towards the end of the year and at the first part of next year."

Unlike with oil, agricultural products cannot be stored in emergency stockpiles to lower prices, and leftover inventories are low anyway.

"Those inventories, especially on the corn side, are predicted to be at almost historic lows," Taylor said

"There's not a lot of reserve that we can tap into from an inventory point of view on the corn side. A little bit more with wheat and a little bit more with soybeans, but in all of those commodities there's not just a huge shelf-life that you have on those."

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown



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