A Positive Forecast for Agriculture
Westchester Group CEO says lower 2009 farm income won't affect long-term profitability.
"Recent reports from the USDA showed a decrease in 2009 farm income, but agriculture is a strong industry and I believe this will have very little impact on the industry for the long-term," says Murray Wise, founder and CEO of Westchester Group Inc., an agricultural asset management firm.
The agriculture industry has, in general, outperformed many other world industries throughout this global recession. Farm income in 2008 was one of the highest on record, and a decrease should have been expected.
"There is so much capital looking for a home in agriculture that this will have little impact," Wise says. The Westchester Group manages farmland portfolios for many large corporate and institutional clients and individual investors. "Even today many investors are turning to agriculture as a viable investment. While many of us continue to invest our money in money markets currently earning only 0.31%, agriculture continues to offer its investors a 3% to 4% return."
Globally, agriculture is in a much stronger position than many other industries with the main driver for its success being growing populations and rising incomes. As global populations continue to grow, demand for food and fiber also increases. China, the most populated country in the world, has had pay increases of 100% in the last three years. Savings deposits have increased, and more families have moved into the middle class. With more disposable income, the first thing that families do is improve their diets, directly affecting worldwide demand for food, especially protein. Foods that were at one time a luxury are now a part of everyday living.
As with any industry, agriculture trends also follow the old adage: What goes up must come down. Producers saw record-high fuel, fertilizer and input costs in 2008, but were relieved by dramatically lower prices in 2009. Wise says he believes the current national and global economic situation will remain volatile in the short term, but the agriculture industry will prevail in the long term.
"A 6- to 18-month reprieve in rising land values could be very positive; it would offer young investors an opportunity to invest in value-added land," Wise states.
Historically speaking, U.S. agriculture is also in a strong position. Although land values are currently high, when adjusted for inflation, land values aren't nearly as high as they were in the 1970s and 1980s. The average American farmer is also carrying less debt than just 30 years ago. In the early 1980s the average farmer was carrying $22 of debt for every $100 of equity; today they are only carrying $9 for every $100.
Wise also notes continuous improvements in seed technology and food production.
"Farmers are progressively doing more with less as world populations grow," Wise says. Resources and land are being tapped into that haven't been before. For example, Chinese livestock production has increased dramatically as producers are using land that hadn't previously been used for agriculture. Agriculture in Australia continues to expand each day as it moves more inland. And crop producers increase crops and yields each year on less tillable land.
"The industry simply needs to use these times as a learning tool for the future; I see agriculture prevailing for generations to come," says Wise.
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