Just as it possible to extract energy from below the ground, it is possible to grow energy above ground. We have been covering the potential for ethanol to take share from petroleum products for some time now. This may be spilling over into the area of farm prices as well.
Patrick Barta in the Wall Street Journal notes some research that predicts a sustained move up in farmland prices. This is due in part to the potential increase in demand for so-called “dual use” commodities.
Another reason is that some agricultural commodities can be used for fuel as well as food. Sugar can be converted into ethanol while palm oil can be made into biodiesel.
When energy prices spike, demand for these and other “dual use” commodities rises, driving their prices higher. It also encourages farmers to devote more land to products that can be made into fuel, potentially reducing output of crops such as soybeans or wheat. So prices of those commodities can rise, too.
While much of the recent interest in ethanol is in so-called “cellulosic ethanol” the potential remains for pressure on farm prices and these dual use crops. While energy is obviously a major investment arena, there is an other alternative investment that is dependent on what grows above ground.
We have noted previously the attraction that timberland has on Wall Street. breakingviews in the Wall Street Journal noted a potential valuation disparity in the stock price of Weyerhauser (WY). Some investors want the company to monetize their timberland assets to as to increase shareholder value. The company, for the time being, is ignoring these entreaties.