This is something that has been of great interest to me and people on this forum. There already a few posts on this, heck them out here:
In this post, I don’t want to repeat myself. Instead, I want to look at a few stocks I found that are often the beaten track. They allow investors to invest in land, except with a slant.
They all share a few characteristics. One is that they are from Australia. Australia is an ideal place to invest in farmland. It is very close to India and China (huge beef and grain markets), the country has a pro-business agenda, it has a booming economy and it’s farming sector is becoming increasingly financialised.
The downside to Australia it has allowed a giant credit bubble to form, which could burst. When this pops, it could easily take down land-values with it.
The key thing though is that land values are going to go up over time, as the demand for food rapidly increases.
Australian Agricultural Land
It is a vertically integrated beef enterprise which means it’s hyper efficient, because it owns every stage of the farming process. Vertically integrated business work well in industries that do not chance - I would argue farming is one.
The company is well positioned to benefit from the steadily increasing of beef demand from Chinese consumers. However, its the land on the books that I found interesting.
Founded in 1824, the company owns a mind-bending amount of land:
Anthony Lagoon/Eva Downs
Aronui Feedlot, Dalby
Purchased in 2002.
Avon/Austral Downs, Camooweal
Brunette Downs, Tennant Creek
1,221,200ha. Purchased in 1979.
Camfield Station, Victoria River
Carrum Station, Julia Creek
50,613ha. Purchased in 2004.
Dalgonally Station, Julia Creek
Delamere Station, Victoria River
Glentana Station, Springsure
Goonoo feedlot, Emerald
Established in 1990.
Headingly/Wolgra/Carandotta, Mt Isa
Labelle Downs/Welltree, Batchelor
Montejinni Station, Victoria River
5473ha. Purchased in 2014.
South Galway Station, Windorah
Thorner Station, Mt Isa
48,600ha. Purchased in 2015.
Wondoola Station, Normanton
Wylarah Station, Surat
In total, it amounts to several million hectares of land. An investment in this company is a play on two levels.
- Emerging Markets Beef Demand. The demand from China and India is rapidly increasing. Since 2012, the demand from Chinese beef has grown to an incredible degree. as China becomes wealthier, this figure will steadily increase. AAC is perfectly placed to benefit from this play with its vertically-integrated farming system.
The value of beef is going to rise and this company will benefit.
2. Water Shortages
The more interesting play is that it’s also virtual water play.
The cost of producing beef is incredibly high.
But the water cost of beef is even higher.
Water is required to grow all foods. Water required to produce one pound (1 lb.) of:
Pork = 576 gallons of water
Chicken = 468 gallons of water
Soybeans = 206 gallons of water
Wheat = 138 gallons of water
Corn = 108 gallons of water
But the water footprint of beef is 2,000 gallons!
As China becomes aware of its growing water shortage and its rapid onset, they will need to find better ways of using their water resources. If domestic beef farmers are using gallons of groundwater, the Chinese could force these farmers to use their water on-site for drinking water (to give to local populations) and import beef instead.
It’s the cheapest option to save water.
The US is aware of China’s need for beef, but more importantly the importance of water in food as well. That is why US exports of soybean, a water-intensive commodity, is their leverage against China:
If US begins to realise the significance of its beef exports to China in water terms, they could halt them. This in turn would drive up the price of beef in the global markets.
When this occurs, the value of farmland will steadily increase as the investors become aware that it could save the water crisis. When this happens, the book value of farmland and beef with water will increase. AAC will be perfectly placed to take advantage of this when it happens!
disclaimer: I have not yet invested in AAL, but there is a high chance I will in the near future.