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Fundamentals of investing in South American farmland & farming

Asset Class Fundamentals.

Farmland and farming investments as an asset class have a unique set of characteristics:

  • Long-term fundamentals: To meet the growing demand for food, supply must grow at 1.7% YOY while facing the challenges of limited arable land, degrading soils, climate change, and growing dependency on irrigation.Both demand and supply side factors pressure farmland values.
  • Resilient cash yields: Unlike gold, Farmland produces consistent annual returns from cash income (Eg: Land rents) and land appreciation with relatively low volatility providing attractive risk-adjusted returns.
  • Natural hedge against inflation: Historically farmland has been regarded as an effective inflation hedge thanks to its positive correlation with inflation.
  • Portfolio Diversification: farmland holds a low correlation to other traditional asset classes providing portfolio stability during volatile times.
  • Climate Action: farmland through climate-smart practices provides an unparalleled opportunity to fightclimate change, mitigate GHG emissions, promote biodiversity, and achieve various SDGs.

Farmland in South America.

Farmland investments, including cropland, grassland, and timberland have consistently outperformed other asset classes over the last 20 years. Over the same period, returns of farmland investments in South American countries, such as Uruguay, have consistently outperformed those in the US.

The forces driving farmland prices, create attractive opportunities for investors in the region where prime farmland is worth a fraction of the cost of comparable farmland around the globe producing clear arbitrage opportunities with attractive risk-adjusted returns.

A Thriving Agribusiness Sector.

Argentina, Brazil, Paraguay and Uruguay are key players in the global food markets ranking among the top world producers and exporters for crops such as soybeans, corn and wheat as well as beef among other.

The region`s soils and climate allow for producing more than one crop per year helping diversify risk into various crops as well as generating revenue more than once a year.

In addition, these countries have the lowest costs of production per ton of crop produced positioning these South American countries among the most competitive crop and beef producers in the world.

The competitive edge of the region's agricultural productivity has sparked a significant influx of investments into fostering a thriving agro-industry and expanding infrastructure.

Despite the ongoing expansion and enhancement of farmland development and productivity, there remains ample room for strategic investments in agribusiness.

Pulp Wood Forestry Boom.

In addition to grains, oilseeds and beef, in the last 20 years, the region has witnessed the rising of its pulpwood and timber industry consolidating as the world's leading producer of short fiber.

The regions natural conditions favor fast-growing and high-quality timber with short harvest cycles and low production costs standing out as one of the best places to grow trees.

The thriving forestry sector has consolidated a strong local industrial demand with various state-of-the art-pulp mills and saw mills.

Written by
Christian Bengtsson

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