Heard on CNBC a few nights ago from anchor Larry Kudlow regarding the recent earthquakes in Japan:

"I mean, the human — the human toll here looks to be much worse than the economic toll, and we can be grateful for that..."

Mr. Kudlow probably didn’t quite realize how awful that sounds…but he might not have been right, either. It appears that Mr. Kudlow may have spoken too soon. In fact, prices on several commodity futures have dropped significantly in the wake of the Japanese earthquakes, tsunamis and now nuclear accidents. According to Bloomberg (15 March):

"Wheat fell to a four-month low, and corn and soybeans tumbled on concern that the earthquake and nuclear crisis in Japan will reduce raw-material demand."

Here's the fact: Corn (maize) is the biggest crop in the U.S. (to the tune of just under $67 billion) - and Japan is the world's biggest buyer of this particular commodity. At the Chicago Board of Trade, corn futures tumbled by .30 cents to $6.36 a bushel (that's the CBOT limit, by the way – it could have gone down further). At the same time, Japan's largest purchaser of maize, Zen-Noh, has announced that it is cutting its order by 24%.

Other commodities aren't faring so well, either. Wheat and soybean futures also took a heavy hit, falling to their lowest levels in several months. Seems as though our friends over in the Land of the Rising Sun have bigger issues to deal with – and meanwhile, the commodity traders over here are dumping their contracts right and left, further driving down prices.

If there is a silver lining to all of this, perhaps it is that low-income people in the developing world (and increasingly, right here in the USA) may finally start seeing a little relief when it comes to food prices that have been skyrocketing in recent months – and hitting hardest the people who can least afford it.

Americans have a very short memory – so I'll remind them of the last two bubbles that blew up in their faces after government regulators lay down on the job (or were bought and paid for by the same people they were supposed to be regulating). The first on was the "dot-bomb" bubble that burst back around 2001. The second was the housing bubble, which blew up in 2008 – after which then-President George W. Bush handed out billions of taxpayer dollars to the same bankers and Wall Street firms who caused the crash in the first place (those who think Obama would have done better can take no comfort, as a senator, he voted for it and as president, probably could and should have done something to stop it and bail out the victims instead).

This time, it's farmland. In Iowa alone, land that was selling at $6000 an acre in 2010 is now being auctioned off at $10,000 an acre as farmers, looking to cash in on the ethanol boom and soaring prices of cereal crops and soy, start expanding their holdings. Unfortunately, we've seen this movie before – back in the late 1970s. That's the last time farmland values went this high. Before that, it was right around World War I, when the demand for American agricultural goods – first from Britain and France, then the U.S. military – made farming very lucrative. But when the "War to End All Wars" was over, so were the good times – and ultimately, families like the Joads lost everything and wound up moving to California.

There are a few differences between the late 1920s, the late 1970s and today. Farmers are carrying less debt than they did back then (one of the reasons farmers like Pa Joad lost their land is because during World War I, they took out some sizable loans to expand their farms and buy those new-fangled steam and gasoline tractors). However, today's farmers may be making the same mistake that homeowners did in the run-up to the disaster of 2008 by taking out second mortgages on land they already own – at inflated values that may stay inflated, or may not. There also appears to be an assumption that prices on commodities are going to continue to rise...

Here's a little word of warning, at least to those speculators who are banking on increased demand for corn-derived ethanol...enjoy it while you can. As this speculation continues to drive food costs up across the board, particularly in countries where people can least afford it, there's going to be increased rage – and trouble...and anything can happen. The other side of the equation is that as things stand, algae is showing a whole lot more potential as an alternative fuel than corn - because over half of its weight consists of usable oil as opposed to corn, which is only about 20% - and nobody eats algae.

Beyond that, my advice is to tread carefully – because you know the law of gravity, which seriously applies to financial markets as well as physics.

Smart people have figured out that making money means putting your money to work – and one of the best ways to do that is buying productive farmland. The land rush is on - and right now, as commodities explode in price, those smart folks who not only want to survive, but thrive and remain at the top of the heap are snapping up plots in America's heartland right and left. For example, while residential and commercial real estate prices are falling across the country, a plot of farmland near Ames, Iowa that was appraised in November 2010 at around $5700 an acre went for $8200 an acre in a recent auction. That a gain of approximately 30%!

What's also happening is that farmers are holding on to their land, since (as realtors will tell you), "they ain't makin' it anymore." Farm income is up for a change...and maybe that's just karma. Consider that before last Great Depression, during the boom times of the Jazz Age, people on the farms weren't sharing in that prosperity...in fact, the depression in farm country started a long time before the crash of 1929, and it did it sure didn't get much better after 1930.

And therein lies a warning...

As terrific as this all seems, there is always a chance of a sudden dive in the market. One of the reasons that farm families suffered so much during the 1920s while Wall Street had a party had to do with the fact that before 1920, prices on a lot of crops were very high – mainly because of the First World War. We were exporting a lot of food to the Allies before 1917 (since most young European men were fighting instead of farming), and once the Yanks got into the scrap, the U.S. Army became a big customer. In response, farmers, whose products had never been in such demand, bought more land and invested in new, mechanical equipment, anticipating that the boom would never end.

Of course, this was all bought on credit...then suddenly, the war ended – and so did the good times.

Although it seems likely that food commodities will continue to rise in price, even the wisest among us cannot see all ends. One thing that's different is that more of these investors are paying less with credit and more with cash. That leaves them less vulnerable. Nonetheless, a sudden nose-drive in the commodities market could change things very quickly.

The other factor in the equation is volatile energy prices. It takes fossil fuels to run a farm, and as things stand, most of those have to be imported from parts of the world that aren't particularly friendly to the USA. Again, anything could happen...

It's worth pointing out that the fellow who bought that plot of land in Iowa for 30% above its appraised value was getting back a bit of his own. According to the story in Bloomberg News, that land had been in his family originally, back around 1900 - it was a family legacy that enabled him to get it back.

On the surface, the South American company Adecoagro – which operates in Brazil, Uruguay and Argentina – would seem to be a good investment. Billionaire financier George Soros thinks so – enough to put a sizable chunk of his own change into the company. Owning and controlling an area of farmland equivalent to the size of Florida, Adecoagro is involved in the production of a range of commodities, including cereal grains, oil seeds, coffee, cotton and biofuels.  One thing on the company's website that impressed me was what it said about its people:

"The human capital of Adecoagro is one of the most valuable assets of our company, which allows us to achieve management excellence thanks to its technical education level and the permanent training of our people."

They also have a philosophy of "Corporate Social Responsibility" that are "intended to contribute to the increase of wealth and general well-being of the communities in which we operate". Of course, a company can say anything it wants on its website – but given the current free and open nature of the Internet, I suspect if the folks at Adecoagro were being less than honest about themselves, folks would be calling them out on it in a heartbeat.

Adecagro appears to be a decent company that is seriously looking to solve problems related to the issues of food and energy security in a way that is genuinely beneficial and human-centered – and still manages to turn a profit.

Now, as food prices in the U.S. are shooting up, Adecoagro is offering stock to U.S. investors. According to a Bloomberg news article last month, about 29 million shares (new and existing) were being offered (about $429 million). Most of this is to expand production of sugar cane, which is a primary source of ethanol. Not a bad idea, given what's going on with petroleum these days.

Originally, these shares were going to be priced between $13 and $15 each. However, by last week, this figure had dropped to $11 a share.

Heck of a bargain, you say? Hold on a sec...as good as this company seems to be, there's reasons why you might want to avoid this one – at least for now.

First of all, go back and revisit my entry of 09 August 2010. Here's one of the problems: the Brazilian government puts some heavy restrictions on how much land foreign investors can own or even lease. According to a recent edition of the FarmlandInvestorLetter, if there is a great deal of foreign investment in this company, it may very well put a damper on things where the Brazilian government is concerned. 

Another problem appears to be Argentina, which is undergoing some serious transitions right now. This is a country that has been on an economic roller coaster for decades (not to mention a lot of political and social upheaval). Over the past few years, that country has made some steps to get its act together, rebuilding some of its industries and propping up some parts of the economy that haven't done so well since the Wall Street crash of middle and late 2008.

Still, it's not the most stable country in that region.

It seems that there is still some debate going on in Brasilia (that's the capital) about foreign ownership and control of Brazilian farmland. (Oddly, this "South American" company has its headquarters in Luxembourg for some reason.) Until that debate is resolved however, those of you with a few extra bucks considering investing in South American farmland stocks should consider all the risks and consequences.  As with all investments, there are associated risks and you could lose money investing.  Prior to making any investment, a prospective investor should consult with its own investment, accounting, legal and tax advisers to evaluate independently the risks, and suitability of that investment.