Friday, March 22, 2013
Thursday, March 21, 2013
Wednesday, March 20, 2013
Tuesday, March 19, 2013
When it comes to commodities, most investors turn to the likes of Jim
Rogers and George Soros, legendary gurus that have long held the
spotlight in this asset class. And while their contributions to the
commodities world have certainly helped shape the market we know today,
there is one group of individuals that is often overlooked, though they
have continually played a major role in the natural resources market:
professors [sign up for our free commodity newsletter here].
These professors have not only helped our understanding of the often complex commodities market, they have also been pioneers in the field, allowing investors of all walks to look at the space from a different perspective. For those wondering who exactly is behind the commodity-focused academia scene, we highlight several accomplished commodity-friendly professors (in no particular order):
[If you're an commodity friendly professor, drop us a line and let us know a bit about your work; we'd be happy to add you to the list.]
1. Campbell R. Harvey
In addition to being a finance professor at the Fuqua School of Business at Duke University, Campbell R. Harvey is a Research Associate of the National Bureau of Economic Research. His blog Garden of Econ is a great resource for investors wanting a macro perspective.
- University: Duke University
- Specialties: Portfolio Management, Asset Allocation, Global Risk Management
- Academic Work: The Golden Dilemma
- University: University of Houston
- Specialties: Economics of Derivatives Markets and Risk Management.
- Academic Work: Searching for the Missing Link: High Frequency Price Dynamics and Autocorrelations For Seasonally Produced Commodities
Roger Dahlgran is a professor at the University of Arizona and is an expert of econometric modeling of futures markets, particularly agricultural markets. He has also received awards and recognition for his development and use of futures trading simulation software.
- University: University of Arizona
- Specialties: Econometric Modeling, Futures-Market Price Behavior, Agricultural Markets
- Academic Work: Ethanol Futures: Thin but Effective? – Why?
Colin Carter is a professor at the University of California, Davis and the Director of the Giannini Foundation of Agricultural Economics. Carter has done extensive research on China’s grain market and international trade, and has a new book out “Futures and Options Markets“.
- University: University of California, Davis
- Specialties: Commodity Markets, Agricultural Trade, International Trade
- Academic Work: Commodity Booms and Busts
5. Ke TangKe Tang is a professor of finance in the Hanqing Advanced Institute of Economics and Finance and School of Finance at the Renmin University of China. His work in commodity markets and asset pricing models is well noted in both the academic and financial communities.
- University: Renmin University of China
- Specialties: Commodity Markets, Chinese Stock Markets, Continuous-time Asset Pricing Models
- Academic Work: Index Investment and the Financialization of Commodities
- University: Princeton University
- Specialties: Financial Economics
- Academic Work: Feedback Effects of Commodity Futures Prices
- University: University of Illinois at Urbana-Champaign
- Specialties: Agricultural Price Analysis and Forecasting, Commodity Futures and Options Markets, Price Risk Management
- Academic Work: Measuring Index Investment in Commodity Futures Markets
- University: Texas A&M University
- Specialties: Applied Decision Analysis, Price Dynamics, Agricultural History
- Academic Work: Asset Storability and Price Discovery in Commodity Futures Markets: A New Look
- University: University of Sussex
- Specialties: International Trade, International Labor Mobility, Agricultural Protection
- Academic Work: Distributional Effects of WTO Agricultural Reforms in Rich and Poor Countries
- University: University of Illinois at Urbana-Champaign
- Specialties: Agricultural Technology, Cash Crop Marketing in Africa
- Academic Work: Purpose and Potential for Commodity Exchanges in African Economies
- University: University of Illinois at Urbana-Champaign
- Specialties: Marketing and Price Analysis, Futures and Options Markets, Risk Management, Econometric Modeling of Feed-Livestock Markets
- Academic Work: New Evidence on the Value of Public Information in Commodity Markets
- University: University of Colorado, Denver
- Specialties: International Finance, Time Series Econometrics, Futures Markets
- Academic Work: Futures Trading Activity and Commodity Cash Price Volatility
- University: University of Minnesota
- Specialties: Agricultural Development and Policy, International Trade, Macroeconomics, Regional Economics
- Academic Work: Measuring Commodity Price Volatility and the Welfare Consequences of Eliminating Volatility
14. Parantap BasuParantap Basu is a professor of macroeconomics at Durham University’s Business School and is the Director of the Centre for Economic Growth and Policy. Professor Basu was also a member of the scientific committee for advising the European Commission during 2010 to 2011
- University: Durham University
- Specialties: Asset Pricing, Business Cycles, Growth and Inequality.
- Academic Work: What Explains the Growth in Commodity Derivatives?
- University: University of London
- Specialties: Quantitative Methods, Systematic Trading, Energy, Metals, Agriculture, Risk
- Academic Work: Forward Curves, Scarcity and Price Volatility in Oil and Natural Gas Markets
I was also struck by that little tiny "Europe's Debt Crisis" headline at the bottom right. It would be very easy to miss or even dismiss!
Monday, March 18, 2013
A 10% to 15% increase in value every year has made farmland an
enticing investment opportunity, especially when compared to an equities
sector that's had trouble returning much of anything to investors. This
dynamic has caused many investors to question which market's the safest
place for their money: Land or stock.
Up until about the last 6 months, the last 5 years have been devastating to the stock market. But, the recession's faded and stock prices have rebounded.
"Iowa farmland values have shown yearly increases for 11 of the past 12 years. The values remain at record high levels where they have been for the past 9 years. Iowa land values have increased by double digits eight of the past 9 years. This year marked the third consecutive year that values have increased more than 15%. The estimated land values have increased more than 2 1/2 times since 2003," says Iowa State University Extension ag economist and farmland values expert Mike Duffy. "The composite value of the stock market, as measured by the Standard & Poor’s Index (S&P) average, has started recovering from the disastrous 2008 year. Even though the S&P lost 34% of its value between 2000 and 2008, its overall record has been impressive since 1990. Stock values rose from 328.75 in 1990 to a December 2012 close of 1,422.29, an increase of over 300% in spite of the decline in 2008."
So, which is the best place for your investment dollars? There are a lot of moving parts to the equation, and it requires a few assumptions on price direction and how returns for both markets will be gleaned, whether through capital gains, dividends or other means.
"The returns to land or stock shares are composed of two parts. The ﬁrst is capital gains or the increase in value. Obviously, this also could be a capital loss if values decrease. The second component is yearly returns," Duffy says. "Owning land has an unavoidable annual ownership cost not associated with stocks. Property taxes must be paid and should be included in a comparison of owning stocks or farmland. Additionally, if farmland is held as an investment and not by an owner-operator, there could be a professional farm manager involved and the fee for this service would have to be considered. There is also a need for some maintenance and insurance with farmland not associated with owning stocks."
All of these add up and, though land's still a strong spot for investment money, they chip away at total land returns, Duffy adds. "Land taxes, a management fee, insurance and maintenance are the only ownership costs considered for land. There is no ownership cost assumed for stocks," he says.
Wildcards looking ahead
There's been a lot of speculation over the last few months about whether land values have reached their tipping point and will start to decline soon, especially among the growing thought that today's high commodity prices -- the primary factor underpinning today's land market -- will slip based on expectations for a big crop this year.
"The value of land is determined by its income earning potential. For the most part, in Iowa, that means the returns to corn and/or soybeans. Returns will be inﬂuenced by a number of factors over the next several years," Duffy says. "Oil prices, ethanol prices, crop yields, costs of production, economic recovery, alternative biomass sources, and a host of other major issues will have an inﬂuence on the price of land."
THat could have land price implications in the shorter term; changing landowner demographics, however, could affect the viability of land as an investment vehicle in the longer term, Duffy says.
"In 1982, 12 percent of the farmland in Iowa was owned by someone over 75 years old. By 2007, this percentage had more than doubled to 28%. In 2007, over half, 55%, of the farmland in Iowa was owned by someone over the age of 65. How this land will be transferred from one generation to the next is not entirely clear at this time. It appears that the majority of it will be passed on to the children, usually in equal shares. This means there will be more landowners and more out of state owners," Duffy says. "Whether they will they want to continue to own the land or sell it is unknown. Too much land being offered for sale is not a problem at this time, but it could become one if the next generation doesn’t want to hold on to the land."
All the variability doesn't lie on the farmland side, though. There's just as much potential volatility in the equities, especially considering there's still a lot of economic uncertainty around the world.
"The performance of the stock market for the next few years is also not clear. The U.S. stock market will be impacted by what happens in the European Union and China among other places in the world. We are no longer insulated from the economic conditions throughout the world," Duffy adds. "The imbalance of trade is another area of uncertainty with respect to possible impacts on the U.S. economy and the performance of the stock market and the land market."
All things considered, there's still a lot of promise in the farmland market for investment. It's been strong in the last few years, though there's a lot of uncertainty looking ahead -- much more so than in recent years, Duffy says. And while the answer's not clear-cut or simple, farmland will remain a strong contender for investment potential in at least the short term.
"Land and the stock market are different types of investments and assets. This simple comparison was based strictly on averages. There are a number of individual stocks that perform better than the S&P. But there are some that don’t perform as well. Anyone contemplating the question of which is a better investment needs to know his or her goals," Duffy says. "Land’s performance relative to the stock market over the past few years has been spectacular. Will this trend continue? Time will tell. Which is the better investment? As the old saying goes, timing is everything in the success of a rain dance."