The Key To Agricultural Profits
Aug. 22, 2014, Panama City, Panama: The key to making money from agriculture is identifying a buyer for your harvests.
Dear Live and Invest Overseas Reader,
The Chinese couldn't source enough walnuts for their recipes so they started substituting pecans. A colleague from Georgia, where they grow tons of pecans, explained this to me earlier this week when I told him I'm more interested in agricultural investments than ever and aggressively trying to source new opportunities.
Pecans can be so profitable, my colleague continued, that some farmers who had been paid not to farm their land (gotta love government farming subsidies) have planted pecan trees and paid the government back its subsidy along with a 300% penalty. This despite the fact that the pecan trees they've planted won't generate cash flow for about five years. That's how great the eventual profits are expected to be.
Of course, to make money from trees (fruit or timber), you have to have a means to sell them. I own with partners a 10-hectare parcel on a river in Panama that had teak planted on it when we bought it. We made the investment for the location and the development potential of the land. The teak was a bonus...or so we thought.
One of the partners who owns this piece with me also owns thousands of hectares of teak in Panama's Darien. When we made the purchase, he figured that, when it came time for the next thinning of his Darien plantation, he'd simply have the company buying his trees come harvest ours, too.
No luck. After much discussion, his Darien buyer simply refused to make the detour to harvest our little parcel. We didn't have enough volume to warrant the effort. The good news is that the trees continue to grow while we try to figure out what to do with them.
Still, this situation makes the point. The end market is the place to start when considering an investment in any agricultural product. The projections for profits from whatever crop you intend to grow can be phenomenal on paper, but they won't materialize if you don't have a buyer for your harvests.