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Worst Investment Out There? Farmland, Investor Says

The U.S. dollar is heading higher, crude oil and grain markets are staying low, and the worst investment out there is .  . . farmland?

Dennis Gartman, longtime capital market analyst and publisher of The Gartman Letter, told 600-plus farmland investors this news Friday at the Peoples Company Land Investment Expo in West Des Moines, Iowa. That last bit just about sucked the air out of the packed banquet room, though many say this assertion ignores basic supply-and-demand principles in a continued tight environment for land in much of the Corn Belt. So, what's actually working?

"My first rule of trading: Do more of the things that have been working and do less of the things that have not. What has been working? Stocks. They've been going upward on a consistent basis," he says. "The investment I'd probably stay away from: land."

Gartman's precedent for what he expects in the farmland market is the housing crash of the early 21st century, which he calls "the best thing to ever happen in the U.S." The demolition of the housing market between 2005 and 2009, he argues, convinced the marketplace that housing "is not an investment," and farmland, though likely not facing a market deconstruction like housing a decade ago, will start losing value as related markets continue to slump as the U.S. dollar index surges.

"I think we're in an environment here where the wind is at our back, but it's a mild wind, a pleasant wind; it's not going to take us forward rushing to higher levels, but compared to the rest of the world, we're so much better off in the U.S.," Gartman says. "We have to get used to the fact the dollar's going higher and oil's low. Buy stocks, don't buy land."

That stronger dollar is going to continue to pressure all commodities lower -- a "harsh reality" for those in the ag sector -- and a virtually even corn-to-soybean acreage picture Gartman expects to unfold in the next year that will cause as much as a $2 drop in corn prices.

"This year, we're probably going to plant 88 million acres corn and 88 million acres of soybeans. Because of the corn-bean ratio, more farmers are going to put soybeans in the ground given these prices right now. Ethanol is going to go south. Ethanol is probably gone, and if that happens, you could see corn prices a lot lower. A whole lot lower. Way lower. I trust I'm clear. They could take a buck and a half to $2 out of corn without any problem," Gartman says, adding the value of land is grossly inflated right now. "In the past several years, if you take a look at corn prices to soybean prices to land prices, land is extraordinarily expensive. If you want to make the implied bet, cash your lot against the rising dollar, inflationary forces, and if you want to buy $8,000/acre land in Iowa, I think you'll fail. I think it'll get very ugly."

So, Gartman says land and grain prices will get slammed while the U.S. dollar index continues to climb. What about crude oil? Especially considering the continued increase in production in the U.S. -- which will essentially make the nation a net-exporter of crude oil in a few years -- Gartman has a grave prediction for that market despite the implications of lower oil to the ag sector.

"In my lifetime, we will never see $75 crude oil ever again. Not ever, not no-how," Gartman says. "Take a look at the futures markets in oil. The back months are now $15 above the spot month. It's called a contango. That's profitable for frackers. Not only that, we're seeing people taking delivery of crude oil because you can make money buying it, selling forward futures and redelivering it when you have a contango. Crude oil is bidding for storage

"You hear people say $45 crude will stop fracking. But, two years out, futures are at 60 dollars. Any bank will lend money hedged at $60 a barrel," Gartman continues. "I think we might have a chance to think $1.85 gasoline looks expensive. It means cheap fertilizer. It makes for very cheap nitrogen supplies. That's going to be wonderful for you guys in the business of growing crops. It will help overcome the fact that grain prices, I don't think, are going anywhere."

Good Deflation?

With the falling yield on U.S. 10-year Treasury notes, declining worker wages, a weaker Consumer Price Index, and lower commodities, the idea of a U.S. deflationary period ahead for the economy is on the minds of some economists.

Dennis Gartman, longtime capital market analyst and publisher of The Gartman Letter, says the talk of deflation in the U.S. should be better described.

"There is good deflation and bad inflation," Gartman says.

For instance, computer prices have been deflated all along. We get so much more out of our computer for $1,500 than you ever used to get out of it for $1,500," Gartman says. "There's more computing capability in my iPhone for $500 than there was that launched the moonshot. And how much did we pay for that? That is a perfect example of perfect, good deflation."

In addition, in the 1890s, the U.S. witnessed good deflation when canals were opened up in the middle part of the country, Gartman says. "That drove down grain prices dramatically. But it increased exports dramatically. That was good deflation."

Meanwhile, the talk of U.S. interest rates going higher is overblown, Gartman says. "It's amazing the number of years that it's been that 'Wall Streeters' keep saying the rates are going to go up. Write this down. Interest rates will go up when they go up. Until then, they are not going to go up."

Editor's Note: Mike McGinnis contributed to this report.

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