Peak Soil Investment: This Quiet Land Grab is Just Beginning

By Andrew Mickey

According to the Economist, Saudi Arabia, Kuwait, and China have been “quietly” buying up more than $20 billion of this asset.

It’s not oil or natural gas assets though. And it’s not the molybdenum they need to build thousands of miles of new pipelines. They’re buying up one of my favorite long-term investments, farmland.

The way things are shaping up, investors who follow their lead now will do exceptionally well in the short-term and long-term. Let me explain.

Another Case of Great Expecations

It’s no secret we’re facing a big opportunity in agriculture. It’s something we’ve delved into quite a bit over the past few years.

Still though, there are a lot of people who haven’t “bought in” to the opportunity here. The thing most investors still fail to understand about agriculture is last year’s credit crunch is a good thing. I expect it to go a long way to making a great opportunity even better.

Right now, official estimates for this year’s crop are far too optimistic. Currently, the U.S. Department of Agriculture (USDA) expects world grain production to rise 4.9% this year. And they’re expecting an increase of 3.1% in 2010.

Granted, that sounds reasonable to most people. But they’re not reasonable expectations at all.

You see, these are very rosy expectations for so many reasons. First, you have to consider that 2008 was one of the top three crop production years in history. The sharp rise in crop prices over the past few years sent farmers around the world into full production mode. The past two years were exceptional. Even though, demand still outstripped supply and food riots broke out around the world.

Also, agriculture production doesn’t grow that fast. It grows at a snail’s pace. An average year will see about 1% to 2% growth – maximum. The past few years have been an exception, not the norm.

The final thing the USDA is missing is agriculture production goes hand in hand with the economy. According to a recent report by Credit Suisse, “[2009] would be the first global recession to coincide with increased crop production.”

So the USDA growth estimates are downright laughable. That’s good news for us though. The misguided USDA is helping keep the window of opportunity open. And when we look through that window, we can see a very big opportunity.

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