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BA Deere
Honored Advisor

Chinese investors buying farmland?

I read this in the elevator newletter and searched the web for a story on this but couldn`t find anything. 

 

The newsletter says:   "Recent sales of two farms near Belmond with over 76 CSR were bought by Chinese investors.  Those who follow land sales claim these were not the first by any means this summers.  Does this pertain to Smithfield, the largest pork producer in the US being purchased by the Chinese to source their own corn? A simple calculation shows if they want to raise enough corn to feed their hogs, it is the equivalent of about 5 Iowa counties.  No doubt they have the money but is it what is best for Iowa?" 

 

That was all there was in the newsletter.

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28 Replies
Kay/NC
Honored Advisor

Re: Chinese investors buying farmland?

There was a local land purchase for corn production purposes here in NC, I think last year. It makes sense, now that corn prices are actually higher than the cost of production.
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BA Deere
Honored Advisor

Re: Chinese investors buying farmland?

Around here Kay, I hadn`t heard of foreign investors buying farmland(newsletter blurb was the first), it`s actually just been "crazy" farmers with a `1031 exchange` in hand buying this land.

 

I thought that the "Chinese way" was to buy cheap and this $14,000 land is alot of things, but cheap isn`t one.  For years the big hog setup`s schtick was to fahgettabout raising feed and let the schmuck farmers do that.  Smarter minds than mine must think that land and grain prices won`t get appreciably cheaper in the future.  Future Fed Chair "Summers" possibly tightening must not have `em too worried.  🙂

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rswfarms
Senior Contributor

Re: Chinese investors buying farmland?/North-Central Iowa Farmland

BaDeere- all my farmland is only 10 miles away from Belmond, Iowa where the Chinese supposely bought some land. They are not messing around with buying low-quality Iowa farmland with 60 or less CSR Ratings. They are going after the best Iowa corn ground in the entire state, if not the country. As far as I know this Chinese buying of Iowa farmland is just a rumor. but I heard that the Chinese set-up what is called a "Shell Company" to get around some laws that the state of Iowa has regarding farmland ownership. As you now the Chinese have bought a huge amount of the  Smithfield Pork Company, I will try and post an article on the Chinese buying of Smithfield. But it makes perfect sense that the Chinese also buy Iowa farmland to have some control over the livestock feed issues too. They are really just being good business men to try and control all aspects of pork production. For your knowledge, China needs over 500 Million Hogs a year to feed there people, and with this amount of demand the buying of Smithfield and the highest quality farmland to produce the needed corn and beans go hand in hand. Again, this is only a rumor, but the purchase of this farmland by the Chinese is just the beginning of there desire to try and get all the Iowa farmland as possible in the North-Central Iowa location. If I was approached by the Chinese to sell all my land. I don't know what I would say, but everyone has there price and depending on the money offered, I too could be bought, just not cheaply however. LOL

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Kay/NC
Honored Advisor

Re: Chinese investors buying farmland?

It wasn't sensible to raise corn and beans at historically less than COP. Why pay full price to grow them, when you could buy them for way less?

Now, with ethanol and other factors in the mix, prices have been driven north of COP, even with overpriced land factored into the equation. Let's just say Shineway has bought Smithfield to get the end product, pork.

It has a shortcut now to a huge supply, in a mature production system ( no startup lead-times, no new regulatory hills to climb). The frenzy of CAFO construction in some Midwest areas now will largely escape the push by environmentalists to regulate the square states anywhere near what we deal with in NC.

Then again, they may get built and then the regulatory costs kick in and escalate, tightening margins the way they have here. If/when that happens, some folks may rue the day they committed to a CAFO to get " free" fertilizer. The publicity over the growing Dead Zone in the Gulf is a less cumbersome and directly connected disaster - a slower, longer emergency, with more likely causes - than the Oceanview spill that drove our state legislature into overtime, passing anti-hog bills in NC. In many ways, it's worse, but is a harder case to make.

According to what one of my Chinese-connected attorney friends has to say, they lack the water to produce anywhere near as efficiently or prolifically as we can here on the US. It is way more logical to verticalize every aspect of hog production, including feedstuffs, and ship primal cuts overseas, than to export feed there.

If I were Chinese, this is exactly what I would do. We hear that Smithfield will seal the deal later this month. Some stockholders are voicing opposition, but I find it doubtful that they will prevail.

As contract growers, we have been reassured in writing that we will have our place going forward. It will be interesting to see what happens to domestic pork supply and prices. I just want to be able to continue to bring home the bacon...
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rswfarms
Senior Contributor

Re: Chinese investors buying farmland?/North-Central Iowa Farmland

BaDeere- I just got off the phone with one of my Custom Operators and asked him about this Chinese issue. It is no longer a rumor, the Chinese are indeed buying up all the farmland they can get around Belmond, Iowa. My operator has said that 2 Chinese guys have been going to every farm auction in the area, and have now bought a total of 5 farms in my area. They are paying whatever it takes to get ownership of this land. Rumor has it that they have $500 Million Dollars to purchase Iowa farmland in my area. That is enough money to buy 35,000 acres. I have a feeling this real get very interesting in the next year or so.

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Kay/NC
Honored Advisor

Re: Chinese investors buying farmland?/North-Central Iowa Farmland

I would say that I am surprised that they are tipping their hand, this far ahead of the acquisition approval. Tells you how sure they are of that passing.
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wt510151
Senior Contributor

Re: Chinese investors buying farmland?

Then, if they act like Walmart, they may want to squeeze your margins much tighter than Smithfield has in the past. They are getting the clout and they may feel they don't need you in the future as less need to move pigs twice when once will do to a wean to finish facility in the Midwest. Hope that it turns out well for you. BTW, wonder if the new ownership will abide by Smithfield's pledge to change sow housing within 15 years?

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rswfarms
Senior Contributor

Re: Chinese investors buying farmland?/North-Central Iowa Farmland

Yes Kay, the Chinese must know something we don't about this Smithfield arrangement. It would be interesting to be approached by the Chinese on buying all my farmland around Bemond. Guess like anyone, if they offered me a very high price for my land, I too could be bought out, I have 9 farms that are all within 10 miles of Belmond, Iowa. This will be fun to watch how all this works out in the next year or so. But from just a business perspective, it makes good sense to try and control all aspects of the hog production and the corn and beans are one of the major items to control for the hogs.

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Kay/NC
Honored Advisor

Re: Chinese investors buying farmland?/North-Central Iowa Farmland

My father's rule of thumb in hogs, ages ago, was that feed made up 75% of the cost of production. I do not know what the current proportions are, but I would guess that cannot be too far off the mark.

Smithfield pioneered in proprietary genetics, and adopted the Wendell Murphy production model. There are pros and cons to the way they conduct business, but so far, growing on contract with the company has been a great opportunity for our family. I am so glad they have given us assurances that this relationship will continue.
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