[A-List] Food Is Gold, So Billions Invested in Farming

["Charles Brown" <charlesb@xxxxxxxxxxxxxxxxxxxxx>]

http://www.nytimes.com/2008/06/05/business/05farm.html?_r=1&em&ex=1212984000&en=3920ed5de889ff2b&ei=5087%0A&oref=slogin

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. 

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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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Articles in this series are examining growing demands on, and changes in, the worldâs production of food.

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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 worldâs need for food will greatly increase â 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.

âItâs going on big time,â said Brad Cole, president of Cole Partners Asset Management in Chicago, which runs a fund of hedge funds focused on natural resources. âThere is considerable interest in what we call âowning structureâ â like United States farmland, Argentine farmland, English farmland â wherever the profit picture is improving.â

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 industryâs commitment to farming through good times and bad.

âFarmland can be a bubble just like Florida real estate,â said Jeffrey Hainline, president of Advance Trading, a 28-year-old commodity brokerage firm and consulting service in Bloomington, Ill. âThe cycle of getting in and out would be very volatile and disruptive.â

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. âI just wonder if they need some sheepâs clothing to put on,â Mr. Hainline said.

Mark Lapolla, an adviser to institutional investors, is also a bit wary of the potential disruption this new money could cause. âIt is important to ask whether these financial investors want to actually operate the means of production â or simply want to have a direct link into the physical supply of commodities and thereby reduce the risk of their speculation,â 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.

âItâs a huge disadvantage to not be able to trade the physical commodity,â 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.

âWe 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,â 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. 

âThe world is asking for more food, more energy. You see a huge demand,â 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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