Monday, May 11, 2009
Dear Reader,
What does the supervisor of a Chinese contract manufacturing factory and a hybrid-driving socialite in L.A. have in common? A lot more than you might think. Both are driving a global trend…one that you can profit from. The emergence of a new middle class is one of the trends I study when looking at a real estate market. Here’s a twist on how you can profit from the emergence of a new middle class.
Last year the population of China consumed 60 million tons of meat (that’s 54 kilograms per head annually)...an increase of almost 300% since 1980. That’s roughly equivalent to 240 million cows, or 600 million pigs, or 24 billion chickens. This trend is being repeated right across the developing world. In India, 400 million people are now eating two meals a day instead of one. Meantime, the world’s population continues to rise…doubling in the last 50 years and predicted by the U.N. to hit 8 billion by 2025.
Across the globe, the demand for food is on the rise. This trend is accentuated as people in the most populous regions of the world begin to eat more meat. To produce a kilogram of beef, farmers need seven kilograms of feed (corn is commonly used). Increased demand for meat means much higher demand for the inputs such as corn.
This trend is happening at a time when supply is coming under intense pressure. Australia, one of the world’s largest exporters of wheat, is experiencing the most prolonged drought in more than 100 years. In the U.S., 20 million acres of land—formerly used to produce maize, wheat, soya, and other crops for food and animal feed—have been diverted to produce crops for heavily subsidized biofuels.
Food prices have been rising relentlessly. This year, we saw food riots across much of the developing world. The demand for food isn’t going away…we all have to eat. Today, there are more mouths to feed than at any time in the history of our planet, and the middle class in Asia and South America continue to grow and demand more food.
Buy agricultural land today and you can profit from one of the biggest trends the planet has ever seen. Buy agricultural land with potential to increase its productivity, in a politically stable country that is accessible to a major market, and you will do even better. Brazil’s high plains, the cerrados, cover 500 million acres. The United States Department of Agriculture has estimated that 400 million acres of this could be opened for crop production. The area yet to be opened for agricultural production is 25% larger than the total crop acreage of the U.S.
Bahia’s coast is known as a vacation playground. Move east to the Bahia Cerrados where some of the world’s highest agricultural yields are achieved. Here you can buy unimproved land for as little as $500 per acre. It takes two to three years to start to get strong yields from this type of unimproved land. Well-managed farms that are producing good yields in soybean, corn, cotton, or coffee sell for $2,000 per acre. Given the yield potential, growing global demand for food, and the booming domestic economy on your doorstep in Brazil, expect the prices of land here to rise.
Ronan McMahon
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An Income Opportunity in Brazil That Yields 18.8% Annually
Posted Under:
brazil, appreciation potential, emerging market
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