Rich Farmers the "New Stockbrokers"

In ten years time stockbrokers will be driving taxis, the smart ones will be driving tractors on their farms, and the smarter ones will set up Lamborghini dealerships catering to farmers, who, according to stock market guru Jim Rogers, will soon be very rich thanks to the decades-long agricultural boom he foresees.

This week, I’ve hardly seen Tania as she’s been chaperoning Jim around the country prior to the Australian listing of his commodity indices (they've been running in Europe for years).  This week, I've been able to get heaps of washing done (can't bring myself to put it away), but I did meet her billionaire boyfriend on Tuesday. His views are fascinating (on commodities, not washing) and have particular significance for agriculture and food.

When someone who’s made his fortune in stock markets says he hardly owns any shares, it’s worth finding out why. He’s a Yale and Oxford graduate who co-founded the Quantum Fund in 1973.  It returned 4200% over the next 10 years and he ‘retired' at 37. He rode a motorbike around the world and a few years later did the same in a custom built Mercedes with his fiancé, whom he married during the journey. Labelled “one of the investment world’s living legends” by the Australian Financial Review, Jim Rogers expects to make more money in agriculture than anywhere else.

 

He spoke at Oxford last year and advised students to abandon their City and Wall St aspirations and instead study agriculture and mining. Jim’s predictions for food and farming stem from a couple of key factors. The main one is the emergence of China. Most people, including many Chinese, don’t understand the full implications of what’s happening there. Britain reigned supreme in the nineteenth century; America in the twentieth (already teetering) and the twenty first century will be China's. As he likes to point out, China is the only country which has experienced recurring periods of greatness.

He's more bearish on America than I am on putting the washing away.  He’s sold all his property in America and moved his family to Singapore. His children are now fluent in Mandarin. He says teaching your kids Mandarin is the best advice he can give anyone.

The growth in China is creating a great demand for the commodities required to fuel the expansion. He points to the fact the Chinese are buying commodity-producing land around the world (Australia, Africa etc) because they can see commodity shortages coming.

In respect to investment markets, he delves into history to understand the cycles which underpin a lot of the positions he takes. Bonds, which tend to operate in thirty year cycles, have been in a bull market since 1981 and this is coming to an end. When he went to Wall St in the 1960s, it was a bit of a backwater, wasn’t attracting the best brains and the money wasn’t anything special. This has all changed in recent decades, but with the deep systemic problems in America, he sees stocks remaining volatile for the next few years and reckons they could go sideways for the next 15-20 years. He’s not keen on banks and finance as a whole. “The power is shifting again from the financial centres to the producers of real goods” he says.

So what about these rich farmers? Well its simple demand and supply. Agriculture has been a terrible business for thirty years, so there’s now a shortage of farmers – at a time when global demand for food is increasing. The average age of American farmers is 58. In Japan, its 66, and the government there is buying up vast tracts of empty land and trying to get people to work it. They’re even trying to attract farm workers from China to do the job. The photos featured here are of my Uncle's property in S-E South Australia. And Jim's right, it has been a tough business for many years.

Jim says that in bull markets, it usually takes 8 or 9 years before investors add capacity, but due to the GFC and “credit crunch” at the end of 2008, this didn’t happen following the pick-up in agriculture which started in 1999. Which means the required capacity still hasn’t been added. Agricultural prices remain historically low and prices will need to increase further before new investment and new farmers (stockbrokers) are drawn in.

How true is all this? At the food producer I used to work for, we had great difficulty in recent years actually getting our hands on the required quantity of lamb (which everyone knows has sky-rocketed), particular cuts of beef, and pork is increasingly difficult to acquire. The price of imported rice rose despite the Aussie dollar increasing about 20% in the same period.  A well known retail and wholesale butcher in Sydney’s inner west told me ongoing supply difficulties mean the increases of recent years are just the start. Demand is still outstripping supply for meat in this country, and the required re-stocking after the drought still isn’t sufficient to keep a lid on prices. It’s a similar story for other agricultural commodities.

Jim sees many headwinds ahead for finance and prefers commodities and real assets like rice, sugar, oil, silver and gold. Historically, as share prices deteriorate, investors head to commodities. We’ve certainly seen food prices in this country outstrip inflation and it looks like this will continue. Give your stock broker some financial advice – get out now. And buy a farm.