Bulgarian Farmland On The Rise. Toto, We...

Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.

As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...

From Dennis Fassett, Cash Flow Mercenary...

Pop Quiz!

Name one country that borders Bulgaria.

Nothing?

Okay, name the body of water that BORDERS Bulgaria…

Still drawing a blank? That’s not surprising. Hardly anyone in the US knows anything about it. (HINT HINT)

Bulgaria is a former soviet satellite country. They overthrew their commie oppressors back in 1989 and became a part of the European Union in 2007. It’s located in Southeastern Europe and is bordered by five countries: Greece and Turkey to the south, Macedonia and Serbia to the west, Romania to the north, and the Black Sea to the east.

It’s a little smaller than Iowa; it’s at the same latitude as Chicago; and a lot of the bad guys in James Bond movies come from there.

BFD, you say. Who cares, you say. Well YOU should care. And here’s why…

Two words: Bulgarian farmland

You read that right: Farmland. In Bulgaria.

You see, Bulgarian farmland has been appreciating at an average annual rate of 19%. Since 2004.

Got your attention, now?

Not only is it appreciating in value, but it yields an average of 71 bushels of wheat an acre, compared with 42 bushels an acre in Kansas.

The kicker is that since nobody can locate Bulgaria on a map, the average price per acre for good-quality farmland is $1,850 in Bulgaria versus $5,000 an acre in Kansas.

Wow, right? Less than HALF the price per acre and almost TWICE the yield.

An article that I found on this said:

“…the rise in local land prices has been fueled mainly by a worldwide agricultural commodity boom that has driven food prices up by more than 100 percent since 2003.”

And:

"On the demand side, much of the growth in population and food consumption will occur in the developing world. As income levels rise in developing countries, consumers there are consuming more meat. Livestock production consumes massive quantities of grain and water, spurring farmers to boost both crop yields and land under cultivation.”

The crazy thing is that:

"…average U.S. corn prices tripled between 2005 and 2012, from $2 a bushel in 2005 and 2006 to $6.22 a bushel in 2011 and 2012. The price surge was partly caused by a rising demand for ethanol, along with other factors, including flooding and drought, higher prices for inputs like fuel and fertilizer, rising demand for meat, and upward movement in commodity markets. In turn, rising agricultural commodity prices have driven a 128 percent rise in average Midwest farmland values over the past decade.”

And, lest you think that there’s a “farmland price bubble” forming, another article said that:

"…crop yields have been leveling off since the dramatic advances of the last few decades, and that today 40 percent of global wheat land is experiencing either flat or declining yields.”

Reza Vishkai, head of specialist investments at Insight Investment Management says:

"We're seeing land under threat globally. You can raise production by increasing land under cultivation, but a lot of that land is concentrated in places like Africa and Brazil and requires huge investment to operate on a profitable basis."

Are you smelling an opportunity here?

I sure am. This is what I see:

Yield per acre is decreasing in the industrialized countries;
China is polluting their environment so badly that they are blocking natural light, potentially impeding photosynthesis and creating conditions that resemble nuclear winter;
The global population is growing; and
There are more mouths to feed, which means more food production.

The bottom line, as one article put it is that, "Owners of quality farmland are poised to benefit from all these trends, which explains why so many agriculture investors are bullish on land.”

Not just land. Bulgarian FARMland.