No tour of the north country would be complete without a look at agriculture. (Links to other stops on the tour so far are at the bottom of this posting.) Yesterday I was driving across the prairie, looking at the bountiful land, now frozen solid.
Above is a chart of four popular investments in the ag world over the last dozen years, all with deep roots in the Upper Midwest. The green line is the change in the average price per acre in Iowa, measured annually. (Good land is going for far higher prices than that demonstrated by the average.) Add in the income on the land — either from rent payments or operations (plus subsidies) — and you have quite the tidy return.
The olive-colored line is the increase in corn prices. A similar move in soybeans and improvements in farm methods that have boosted yields have led to a golden age in prime dirt. It has been spurned along by government action in the form of monetary stimulus and fiscal support, especially the ethanol prop.
Related stocks have also done well, including Deere (DE), which makes the big machines (increasingly controlled by computers rather than humans) and Mosaic (MOS), which sells nutrients that are applied to the land.
Is there a bubble in farmland? Look to the underlying return available to the buyers at today’s prices and you’ll see that there’s little if any margin for error. (Chart: Bloomberg terminal.)
Other postings in this series have featured Fastenal, Stratasys, the oil boom in the Bakken, Mairs and Power, and Polaris and Arctic Cat.
Speaking of thematic series, the one on equity research continues elsewhere, with a look at the odds boards of the investing world.