Global Warming – Drought & Chinese Imports Shape an “Experiment in Agriculture” for Colorado

“…THOSE WHO LABOR IN THE EARTH ARE THE CHOSEN PEOPLE OF GOD, IF HE EVER HAD A CHOSEN PEOPLE, WHOSE BREASTS HE HAS MADE THE PECULIAR DEPOSITS FOR SUBSTANTIAL AND GENUINE VIRTUE. IT IS THE FOCUS IN WHICH HE KEEPS ALIVE THAT SACRED FIRE WHICH OTHERWISE MIGHT NOT ESCAPE FROM THE EARTH”. Thomas Jefferson, 1789

Ethno-Agriculture

According to the book “The History of Agriculture in Colorado” the primitive plows used to break the soil in Colorado’s first agricultural settlements (San Luis Valley) were made of piñon wood for its superior strength. The Piñon was life to our agricultural communities, and more than a few early exploration parties in the Rockies, both Spanish and American, were saved from starvation by Pinyon and its nuts. The Piñon Pine, the Piñon Nut and the settlement of humans in Colorado have a history that traces back to the Basketmaker Culture under the Pecos Classification System. Piñon ecosystems have had subsistence, cultural, spiritual, economic, aesthetic and medicinal value to Native American peoples for centuries and continue to be widely studied in its past & present zone(s). Among ethno-botanists and archeologists, a consensus is that the first human settlements in Colorado resulted from the Piñon Nut providing a winter protein source – sustaining life when game animals were scarce – allowing man to build the first societies (Cliff Dwellings) in Colorado.

Agriculture in the East beats Western Agriculture

Currently, over 80% of the $49 million dollars in Pine Nuts consumed in the U.S. market are IMPORTED FROM CHINA, with no benefit to western landowners. “We have thousands of US households who buy & eat Pine Nuts – unaware of their true Chinese origin”. Pine Nuts (Piñon Nuts) provide a significant source of protein – in levels surpassing even pecans & walnuts – with significant amounts of Vitamin A, Riboflavin, thiamin, and niacin – “they really have no food rival in the nut world”. Also, Piñon trees naturally function as a “great carbon sink” for the planet by removing carbon. “Certainly, as consumers find they are unknowingly getting more of their protein from eating ‘cloned beef protein” the thought of adding a wild & natural protein to their diet – like that found in Piñon Nut’s – is appealing to the health & environmentally conscious”.

This project involves ‘experimental arid land agriculture’ in the creation of a pine nut tree improvement program. Improvement programs of nut pine trees might involve four main steps: 1) Selection of superior trees–(i.e. “plus-trees”)–from natural stands; 2) Grafting of these superior plus-trees into orchards to produce genetically improved seed (nuts); 3) Field testing of these plus-trees to identify the best trees and improve the orchard seed ( cone and nut size) by removing inferior trees; and 4) Continued improvement and development of still-better varieties through interbreeding of the best trees. It is known that pine nut crop size is strongly environmentally influenced, and that pests and health are important. For example, tip moth activity depresses piñon cone production, as does dry weather and high temps, regardless of the tree’s genetics. And tree size, an important determinant of cone crop potential, is very much influenced by soil type, climate, pest history, competition, etc. There are so many factors affecting the ‘phenotype’ — what you see — that the only way to determine the characteristics of the ‘genotype’ of a tree is to grow offspring from its seeds in progeny testing.

Arid-zone agriculture as it relates to the Piñon Pine

“As an area of research and development, arid-zone agriculture, or desert agriculture, includes studies of how to increase the agricultural productivity of lands dominated by lack of freshwater, an abundance of heat and sunlight, and usually one or more of extreme winter cold, short rainy season, saline soil or water, strong dry winds, poor soil structure, over-grazing, limited technological development, poverty…” Wikipedia…

Two basic approaches to solutions are

o view the given environmental and socioeconomic characteristics as negative obstacles to be overcome

o view as many as possible of them as positive resources to be used

Vision of the Future – Colorado Piñon Nut Orchards?

In looking to the future, it is possible to see increasing numbers of Farmer’s & Landowners throughout the southwest appraise the benefits of now managing their own unprofitable arid Piñon Woodlands as active “Piñon Nut Orchards”. Developed breeding, pollination & tree cultivation practices – already in use to improve crop yields on Pecan, Walnut, & Apple Orchards can be applied to economic benefit on a Piñon Nut Orchard. “A farmer can create either a transplant or seedling seed orchard, or enhance the productivity of the native Piñon trees already on the land too” said Alan Peterson who is pioneering the research. And with Piñon nuts selling for over $15 a pound – this really does represent a new: “Business Model for the Environment.”

“CULTIVATORS OF THE EARTH ARE THE MOST VALUABLE CITIZENS. THEY ARE MOST VIGOROUS, THE MOST INDEPENDENT, THE VIRTUOUS, AND THEY ARE TIED TO THEIR COUNTRY, AND WEDDED TO ITS LIBERTY AND INTEREST, BUY THE MOST LASTING BONDS. AS LONG AS THEY CAN FIND EMPLOYMENT IN THIS LINE, I WOULD NOT CONVERT THEM INTO MARINERS, ARTISANS, OR ANYTHING ELSE…” Thomas Jefferson, 1785

Introduction to the Piñon

Of approximately (14) species of cultivated nuts in the United States, the Piñon remains to come under cultivation.

The ancestor of the piñon pine was a member of the Madro-Tertiary Flora, (a group of drought resistant species), which starting 60 million years ago, its host climate started to change from moist to dry.

Piñon (Pinus Edulis) grows slowly into a small, drought hardy, and quite long lived native species of the Southwestern United States. It common name is derived from the Spanish piñon and refers to the large seed of the pino (pine). Other common names are Colorado Piñon, and nut pine. Existing woodlands, where Piñon is the major species, cover about 36 million acres combined in Colorado, New Mexico, Utah, and Arizona, but drought and resulting pine beetle attacks and various pathogens have had considerable effect on Piñon stands.

Piñon trees develop in areas with annual precipitation from a low of 10″ annually, to upwards of 22″ inches, and where temperatures exist from an extreme low of -35 Celsius, all within as short as 90 days of frost-free annually. In its highest elevation range and northern most latitude, native Piñon growth can be found in a variety of soil depths, textures, from rocky gravels, to fine, compacted clays, and at elevations from 4500 to 7500 foot elevations, with isolated specimens up to 9400 feet.

From research into the most desirable Piñon Orchard locations (i.e. low land values, good elevation + rainfall, existing high producing, native Piñon stands), it stands out that those rural communities most in need of any economic stimulation were found in proximity to those parameters. Thus Piñon Orchards would be of significant value from their establishment & Nut harvesting, especially in those areas currently deemed unsuitable for traditional agricultural crops. It is hopeful that a small, rural community ‘Brands’ itself around an increasing collection and consumption of Piñon Nuts, i.e….hosting a ‘Piñon Nut Festival’ theme, piñon nut commodities (candies, menu items, and their resulting establishment of improved, Piñon Orchards. Thus co-location of active Piñon cultivation in proximity to rural areas in need of any economic stimulation, may prove to be one of the most exciting benefits.

Economic Benefits from increased Piñon Nut Production

Beneficial affects to a local economy develop from several different channels: the sale of nuts crops would impact the economy directly, through the purchases of goods and services locally, and indirectly, as those purchases in turn generate purchases of intermediate goods and services from other, related sectors of the economy. In addition, these direct and indirect effects increases employment and income, enhancing overall economy purchasing power, thereby inducing further spending on goods and services. This cycle continues until the spending eventually leaks out of the local economy as a result of taxes, savings, or purchases of non-locally produced goods and services.

Barriers to Commercial Cultivation of the Piñon

o Complexities of water use, water rights and water availability in Colorado, and all arid lands of the west.

o Piñon nut (seed) production is cyclic and good crops can occur at 2-7 year intervals, but the average crop has been produced at 4.1 yr intervals from a 58 year study.

o Slow growth rates in typical specimens, unless placed under intense cultivation or grafting practices.

o Limited existing knowledge of cross-pollination and nut size and nut yield improvement from either cultivated or native Piñon plantations in the United States.

o Limited existing knowledge or study of grafting success on piñon or other nut pines species.
o Possibly the most drought hardy characteristics of any nut producing plant -increasingly important in a ‘global warming’ climate ‘onset’.

o Higher protein per weight than all nuts but cashew.

o Piñon has adaptability to the widest range of soil types.

o Piñon incurs little damage from ‘browsing’ by deer, elk, rabbits, and rodents over its entire range.

o Higher and best use of arid lands than beef cattle raising on an output of protein per acre. (Piñon nuts = 123% more protein efficient per acre than beef.)

o Few disease and insect herbivory concerns.

The Nut bearing pines historically have had little scholarly focus as a crop producer. In (1917) Dr. Robert T. Norris (NNGA) recognized the pine nuts potential (and future) : “I presume that the extensive planting of pine trees for food purposes will have to wait until we have advanced to the point of putting other kinds of nut trees (walnuts, pecans, etc.) upon good ground first. Pines will be employed for the more barren hillsides when the folks of … hundred years from now begin to complain of the high cost of living”.

…”No sentiment is more acknowledged in the family of Agriculturists than that the few who can afford it should incur the risk & expense of all improvements and give the benefit freely to the many of more restricted circumstances.” Thomas Jefferson, 1810

Agriculture Investing – The Basic Picture for Investors

An expanding population, scarcity of resources and a changing climate happen to be three trends that define current times. Alone, each factor constitutes a major issue, but when combined and intertwined as they are, they become all the more serious. As time passes, the paths of these factors will become all the more linked and their effect upon the global economy will become ever more pronounced. Sectors at the nexus of this coming together offer investors the best prospects for capital growth and income in the short, mid and long-term.

The agricultural sector is perfectly positioned to take advantage of these fundamental changes in demand for food and our apparent inability to deliver it. Demand for agricultural commodities is ballooning, and will continue to do so as demand for food from an extra 75 million people per annum, a shift to high protein diet in developing nations, and the use of food crops as an energy source by way of biofuels drive fresh demand. Yet at the same time increasing our ability to supply these commodities is diminishing, a fact that can be blamed on a multitude of factors including climate change, a definite lack of further farmland and diminishing yield increases from the green revolution.

Production of grains, as measured on a per capita basis, started to decline around the mid 1980’s and the availability of agricultural land per person started to fall in the very early 1960’s.

Two years ago In 2008, grain stocks were at their lowest level for over four decades and resulted in the biggest spike in agricultural commodity prices since records began.

Of course we saw these price correct themselves towards the end of the year, Yet since then price have continued their rising trend despite the recent financial crisis reigning in demand. The global food supply sits in a precarious position, pressured from above and below by both increases in real demand and limits to increasing supply.

It could therefore be argued that the land that is capable of producing such commodities will become a more valuable resource as time passes. It is then safe to say that Investors savvy enough to look at agriculture investing by way of investing in farmland will be best positioned to take advantage of this supply and demand mis-match.

Here are the facts:

The global population expands by over 200,000 people daily.

The current population sits around 6.7 billion people and there are approximately 1,402 million hectares of farmland, 138 million hectares of perennial agricultural land and 3,433 million hectares of meadows or what could be termed pasture to feed this amount of people.

The grand total of food-producing land on the planet amounts to about 4,973 million hectares. this means that each person on the planet has about 0.74 hectares when you include all types of agricultural land. Bear in mind that this land must also continue to produce all of our cotton and rubber, as well as every ounce of grain and meat, and grain to feed the meat, and the biofuels that we all require.

These calculations lead us to conclude that, based on current levels of agricultural productivity, we require an extra 148,460 hectares of land every single day to feed the 200,000 or so new mouths to feed. This equates to a total area of land, solely to grow crops, that is approximately the size of Greater London, or 100% larger than New York City, Tokyo and Singapore combined.

The real picture is alarmingly different, where we should be adding a huge amount of land to agricultural production on a daily basis, we are in fact reducing the amount of land available for agricultural purposes and for the last three years the total area of farmland has diminished substantially.

These numbers demonstrate dramatically the challenges posed to feeding an ever-expanding population with a strained farming base. This has led to sharp increases in farmland prices across the world and the value of good quality agricultural land is driven by rising demand and diminishing. To be more specific, continued rising demand for the commodities produced by farmland, i.e. food, will continue to drive values higher, whilst at the same time, restrictions on expanding the amount of farmland place a downward pressure on supply, again pushing up values.

It is a complex picture with many factors to measure and take into account. As commodity prices rise, demand for land increases, and supply also rises if more land is brought to production. At the same time, if yields increase then less land is required, but if production capacity is lost, as we are more often witnessing due to climate change, urbanisation and land degradation it is more likely that more land, which is not available will be needed, therefore existing farmland becomes more valuable and prices rise.

Farmland investment should be viewed at worst as a mid-term strategy and ideally as a long-term hold, but understanding the short-term fundamental drivers such as commodity prices allows the savvy investor to identify the best opportunities to purchase. The objective of the Investor should be to clearly understand the longer term trends, thus empowering the investor to make the correct decisions.

It is my opinion that investing in farmland will provide the investor with by far the best opportunity for mid to long-term capital appreciation and sustainable income. Choosing the right market in which to invest should be a decision taken based on the current pricing of the asset compared to its true value.

A lack of credit and depressed market sentiment are also playing a role in presenting off-market opportunities for investors to acquire assets at good prices, and a very simple analysis of the revenues generated from a farm, minus production costs, will tell the Investors if that land is good value. If one were to buy farmland in the UK at today’s average price of around £14,000 per hectare, we know that we could grow 7.5 tonnes of wheat and sell it for around £160 per tonne creating a revenue of £1,200, minus production costs of about £300, leaves a net annual income of £900 for a £14,000 investment, equating to an annual return of 6.4%. Buy farmland in south America for $4,000 per hectare and your ROI shoots to around 16%, and in Australia you can buy land so cheaply right now that you could return an income equivalent to 40% annually.

Many opportunities exist for private investors to take advantages of these trends without taking on the complex operational responsibilities associated with farmland ownership. For more information on farmland investment opportunities available for private investors, contact David Garner at DGC Asset Management.