The overall US economy may be struggling against a double-dip recession but in farm country the boom times have rarely been better. Farmland prices are setting records and farmer incomes have been buoyed by exports and biofuels, easing the pain of some rough summer weather from drought, floods and fires.
Amid China's voracious appetite for grains and worries about climate hurting crops and food supplies in many countries, US agriculture's attraction as the world's breadbasket has become a beacon for Wall Street. Firms like Omaha-based Gavilon, owned by Ospraie, a hedge fund associated with George Soros and Canada-listed Ceres Global Ag have been buying up grain elevators from Wyoming to Toronto.
That is unusual: investors owning grain silos. But analysts say it's not what it seems. No one wants to hold corn as a long-term asset, like gold bullion. But storing and moving grain for others has now become a very profitable business. William Wilson, a consultant and professor at North Dakota State University, said that 10 years ago you could store grain at elevators 2-1/2 to 3 cents per bushel per month. Now costs can be 8-10 cents a month depending on location or grain.
"We've seen a lot of big new entrants into the agricultural commodity industry including White Box, Gavilon and others who are expanding," Wilson said, referring to Minnesota-based hedge fund White Box Advisers, once an owner of grain storage. "One reason has been the shift to ethanol having a bigger part of the market, where they demand quick access to corn on a 12-month basis," Wilson said.
"Most of the time when you hear of private capital moving into agriculture they are talking about buying farms. But storage is a logistical function of the marketplace," he added. Wilson said special market factors, such as changes to the Chicago Board of Trade wheat contract, have also had the cumulative effect of raising prices for grain storage.