Don't bet the farm
excepts from a Barron's round table conference article
By JIM MCTAGUE
Marc Faber, a Barron's Roundtable member who manages investments from Hong Kong, bought farmland in New Zealand some years back in
anticipation of growing global food demand. But he
considers U.S. farmland wildly overpriced and, as a result,
sees arbitrage opportunities in farmland-rich Russia, Paraguay and Uruguay.
The Russian embassy in Washington says that farmland around Moscow sells for about $1,000 an acre, while in the hinterlands the price is about $400.
Peer Voss, a farmland broker in Uruguay and Paraguay, says prices are still relatively low in those countries despite rapid appreciation in the past
two years. He says land in Uruguay has risen 250% and now ranges from $800 an acre in the least desirable areas to $1,700 in the best.
The most imminent threat is the housing meltdown. Leuthold says that, historically, a convulsion in one part of the realty market eventually has affected all others. In the agricultural sector, ranchland and recreational farmland already have been quietly hit, having peaked in 2006, according to brokers.
Jack Horton of Vale, Ore., who has been selling rangeland for 36 years, says prices are down 10% on average, and as much as 20% to 30% in some areas of his state. Recreational plots, bought by sportsmen, have also tanked, he adds.
The drought in the West also is hampering demand for working ranches, as is the high cost of cattle feed, resulting from -- what else? -- the ethanol boom. Brokers took heart when Louis Bacon of Moore Capital Management spent $175 million recently on the 250-square-mile Forbes Ranch in Southern Colorado for a holiday retreat.
"It's the American dream to own part of the West," Doug Hall of Hall & Hall a multi-state brokerage company located in Billings, Mont., says. "There are an awful lot of people who made a lot of money who want to enjoy it while they have it."
But smaller places -- under 5,000 acres -- away from the mountains are harder sells, he acknowledges. John Stratman, a broker for the Mason & Morse Ranch Co. in Glenwood Springs, Colo., concurs that the lower end of the market has slowed. "I don't think the buyers have gone away.
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