Agcapita is Canada's only RRSP and TFSA eligible farmland fund and is part of a family of funds with almost $100 million in assets under management. Agcapita believes farmland is a safe investment, that supply is shrinking and that unprecedented demand for "food, feed and fuel" will continue to move crop prices higher over the long-term. Agcapita created the Farmland Investment Partnership to allow investors to add professionally managed farmland to their portfolios. Agcapita publishes a monthly Agriculture Brief which deals with agriculture specific investment issues along with big picture macro-economic issues.

1. Agriculture Brief
June, 2009
1

2. Monthly Highlights
Canadian Farms incomes up 60%
Global agriculture prices move up
Current crop prospects - droughts in China and Argentina
Water drives many cross-border farmland investments
Agriculture productivity growth is now stagnant at much lower
levels than the long run historic average
Stocks versus bonds over the long run
Emerging economies still growing over 5% per annum
Is the US AAA rating at risk
Contents
2 Canadian Net Farm Incomes up over 60%
2 Global Agriculture Prices Move Up
3 Current Crop Prospects
3 Cross Border Farmland Investment
4 Water and Farmland Investment
5 Agriculture Productivity Growth is Declining
6 Stocks Versus Bonds in the ”Long Run”
6 May Was Kind to Commodities
8 Emerging Economies Still growing
9 Is US AAA Rating at Risk
9 Now Commentators Want Inflation
10 Chairman of the Fed on Sixty Minutes
10 How Can Trillion Dollar Deficits be Paid
10 Money Supply Growth
11 How Big is the US Deficit?
11 How Much is a Trillion Dollars?
11 Hyperinflation – Google Trends
11 Inflation Protection
12 Financial Sector Compensation
13 Appendix
1

3. Farmland Update
Canadian net Farm inComes up over 60% Global aGriCulture priCes move up
Statistics Canada’s 2008 farm income report showed In 2008, United Nations Secretary General Ban Ki-
that net farm income (cash receipts less operating moon predicted that world food production had to
expenses and depreciation, plus income in kind) increase by 50% by 2030 if it hoped to meet rising
totaled $3.3 billion up 63 per cent from 2007. Higher demand. Clearly supply continues to lag demand
grain and oilseed prices through the first part of as the Food and Agriculture Organization (“FAO”)
2008 were the primary driver and so Saskatchewan, announced this month that the number of hungry
with its large base of grain and oilseed production, people in the world will increase to a record 1 billion
benefited the most from the stronger crop prices. this year. “We have never seen so many hungry
Total farm cash receipts in Saskatchewan increased people in the world,” Jacques Diouf, director general
22 per cent, the highest of any province. of the FAO said. According to the FAO, global food
prices rose in April, led by gains in oils, fats and
Chart 1: Food priCe index Chart 2: Food priCe indiCes
2002-2004=100 2002-2004=100
230 300
Oils and Fats
2008
200 250
Dairy Cereals
170 200
2007 Sugar
2009
140 150
Meat
2006
2005
110 100
J F M A M J J A S O N D A M J J A S O N D J F M A
Source: FAO Source: FAO 2008 2009
2

4. Farmland Update (continued)
sugar. The FAO’s index, which tracks a basket of 55 commodities (such as corn, wheat and vegetable oil)
foods, increased 2% between March and April, from are driving wholesale costs higher. Ultimately if this
140 to 143 (see appendix). upward pressure on wholesale costs continues (as
I anticipate), the higher prices will be passed on to
As part of this ongoing trend of increasing demand consumers, resulting in an acceleration of consumer
for food, Bill Lapp former chief economist for food inflation.”
ConAgra Foods recently observed that the wholesale
cost of food products continues to rise in the US Current Crop prospeCts
despite the recession. The US Producer Price Index
for finished food rose by 1.0% from March to April 2009/2010 appears to be developing into another
2009. In Lapp’s opinion “…the underlying strength in challenging season for agriculture supply. Both China
the wholesale price of other food products is unlikely and Argentina, typically large cereal crop producers,
to abate. Just as we experienced during 2007 and are facing severe drought conditions that are
early 2008, increases in the price of underlying expected to materially reduce output.
Cross border Farmland investment
Chart 3: Countries with poor Middle eastern countries are aggressively pursuing
Crop prospeCts foreign farmland deals. What they are basically
doing is importing water. In one country alone,
the Sudan, South Korea has signed deals for
Production 690,000 hectares, the United Arab Emirates (UAE)
Africa
Shortfall Driver
Angola Drought
Ethiopia Drought
Mozambique Drought Chart 4: Farms raCe
Tunisia Drought
Asia/Near East 0 200 400 600 800
China Drought
China 2.8m
Israel Drought South Korea
Jordan Drought UAE
Syrian Arab Republic Drought Saudi Arabia
Latin America and the Caribbean Quatar
Argentina Drought Source: International Food Policy Research Institute
Source: FAO Selected investors, hectares obtained, 2006-09, ‘000
3

5. Farmland Update (continued)
for 400,000 hectares and Egypt has secured a experienced extreme famine and starvation in the
similar deal to grow wheat. An official in Sudan last 50 years bringing food security to the top of the
(traditionally known as the breadbasket of the Arab domestic political agenda.
world) says his country will reserve roughly a fifth
of the cultivated land in Africa’s largest country for In total, the International Food Policy Research
Middle Eastern investors. It is not just Gulf states Institute (IFPRI) says between 15 million and 20
that are buying up farms. China secured the right to million hectares of farmland have been subject to
grow palm oil for biofuel production on 2.8 million transactions or talks involving foreigner investors
hectares in the Congo, which would be the world’s since 2006. Putting a conservative figure on the
largest palm-oil plantation. It is negotiating to grow land’s value, IFPRI calculates that these deals are
biofuels on 2 million hectares in Zambia. According worth $20 billion-$30 billion.
to one estimate, 1 million Chinese farm laborers
will be working in Africa this year. China is unique water and Farmland investment
amongst the large economies of the world in having
Water shortages have provided the hidden driver
behind many of the foreign investor farmland deals.
Peter Brabeck-Letmathe, the chairman of Nestlé,
Chart 5: water use ForeCast
states: “The purchases weren’t about land, but
3200
water. For with the land comes the right to withdraw
Agriculture Domestic use Industry the water linked to it, in most countries essentially a
2800 freebie that increasingly could be the most valuable
2400 part of the deal.”
2000 Its important to note that producing food requires
1600 significant amounts of water as for example:
– 1kg of beef meat requires 15,000 litres of water
1200
– 1kg chicken requires 4,000 litres
800 – 1kg of rice requires 1,400 litres.
400
Rather than import water, which is a bulky and
0 expensive undertaking, it is more cost effective to
1900 1925 1950 1975 2000 2025 1900 1925 1950 1975 2000 2025 1900 1925 1950 1975 2000 2025
import the crops themselves. In fact, agriculture is
Extraction Consumtion Cubic km per year
the biggest consumer of water in the world (74%).
Source: Igor A. Shiklomanov, State Hydrological Institute If the trend towards higher protein diets continues,
(SHI, St. Petersburg) and United Nations Educational, then according to the United Nations, agriculture
Scientific and Cultural Organization (UNESCO, Paris), will be the overwhelming consumer of global water
1999. resources and the fastest growing category as well.
4

6. Farmland Update (continued)
aGriCulture produCtivity Growth is
Chart 6: produCtivity trend
deClininG
Global agriculture yield growth has been around 2% 5.0%
pa over the last 40 years, quite a respectable long 4.0%
term average. However, the long term trend disguises
the fact that global yield growth has been declining 3.0%
steadily and now averages only around 1% pa. 2.0%
1.0%
0.0%
1980 1985 1990 1995 2000 2005
Source: USDA, Agcapita (15 year trailing average)
5

7. Global Macro Outlook
stoCKs versus bonds in the ”lonG run”
Most investors have heard the statement that stocks stocks. If the theory is that stocks outperform, then
outperform in the long run. Invariably there is never to be completely sure your investment horizon might
a clear answer to the obvious question “How long is just have to be a century. Source: Michael Santoli,
the long run?”. The theory is certainly not universally Barrons.
true over 10 and 20 year periods and even over some
30-year periods. may was Kind to Commodities
In an extreme case, bonds outperformed stocks from Commodities and hard assets in general did
1803 to 1871. From the chart, stocks beat bonds extremely well in May. The CRB, an index of major
from 1932 to 2000 but in the periods from 1968 to commodities, jumped approximately 12% in May – its
2009, 1803 to 1871, and 1929 to 1949 bonds beat best month since 1974. Crude was up approximately
28% in May - its best month since March 1999.
Chart 7: stoCKs vs. bonds Stepping back from the short-term trend that seems
to be developing, how do commodities look over
the last 10 years. There has been much discussion
1,000 about the recent “collapse” in commodity prices,
Equity vs. 20-Year Bond Relative Return however is that actually the case?
Most Recent Period of bond Outperformance
100
Bonds Beat Chart 8: reCord month For Crb
Bonds Beat Stocks
Stocks 1968-2009
255
1929-49 CRB Index
250
10
245
Bonds Beat
Stocks 240
1803-71 235
1
230
225
220
0.1
1820 1840 1860 1880 1900 1920 1940 1980 2000 215
Apr25 May02 May09 May16 May23 May30
Source: Research Affiliates, cumulative relative
performance 1801-2009 Source: www.agorafinancial.com
6

8. Global Macro Outlook (continued)
Clearly the answer is no. Commodities, while down the US dollar as can be seen in Chart 9, and the
from their recent highs, are still comfortably in an markets now seem to be accepting that we have a
uptrend compared to 10 year averages. Another developing inflation problem.
interesting point is how commodities have fared
since the November 2008 lows. Most commodities Inflation is certainly what the heretofore quiescent
rebounded significantly more than the stock markets. “bond vigilantes” are starting to predict. Bond yields
in the US have moved up significantly (see Chart 10).
Why have commodities rebounded more strongly The central banks of the world can control the short
recently - investors are optimistic about indications end of the yield curve but not the long end, certainly
that growth is accelerating in the BRIC nations not forever.
(see Chinese and Indian growth rate data below).
However, at Agcapita, we are also focused on the In late May the markets made a large shift in the yield
inflation signal that the recent move in the CRB index demanded on US sovereign debt – with the yield on
seems to contain. Monetary expansion is rapidly 10-year Treasury notes moving up to 3.75% from
depreciating currencies around the globe, in particular 3.19% a week earlier, a six-month high. US 30-year
table 1: Commodities priCes 2000-2009
SPX Bull Top High Date High 3/24/2000 Current High to 3/24/2000
3/24/2000 Since Achieved to High Level Current to Current
S&P 500 1527.46 1565.15 10/9/2007 2% 893.06 -43% -42%
Oil $27.93 $145.80 7/14/2008 422% $63.10 -57% 126%
Nat. Gas $2.76 $15.41 12/13/2005 458% $3.41 -78% 24%
Gasoline $0.88 $3.43 6/6/2008 292% $1.78 -48% 103%
Gold $284.85 $1005.00 3/17/2008 253% $950.60 -5% 234%
Silver $5.13 $20.77 3/5/2008 305% $14.77 -29% 188%
Platinum $479.50 $2273.00 3/4/2008 374% $1149.00 -49% 140%
Copper $0.80 $4.07 7/3/2008 408% $2.08 -49% 159%
Zinc $0.51 $2.10 11/24/2006 315% $.65 -69% 28%
Uranium $9.20 $136.00 6/1/2007 1378% $49.00 -64% 433%
Corn $2.09 $7.11 6/27/2008 241% $4.08 -43% 96%
Wheat $2.59 $14.07 2/27/2008 444% $5.27 -63% 104%
Sugar $0.06 $0.20 2/3/2006 262% $0.17 -17% 199%
Cocoa $1020.00 $3593.00 7/1/2008 252% $2608.00 -27% 156%
Steer $72.00 $109.25 10/20/2003 52% $84.97 -22% 18%
Source: www.zealllc.com
7

9. Global Macro Outlook (continued)
wholesale mortgage rates immediately followed, current global bail-out efforts but the actual desired
rising from below 4% to 4.74%. Two catalysts for this outcome?
move in US Treasury yields were:
– reduced investor demand for a $26bn issuance of emerGinG eConomies still GrowinG
US government debt; and
– another round of quantitative easing (“QE”) by the − India: India’s economy grew 5.8% in the first
US Federal Reserve. quarter, well above the 5% expectation. UBS
increased up its growth forecast for the country to
QE is simply central banks printing money to buy 6.2% over the next year
debt. How long can the central banks of the world − China: China’s economy will expand 7.5% this
keep up QE before even the slowest participants in year, up from previous estimates of 7.1%, says
the market finally grasp that inflation and currency Bloomberg - 8% in the third quarter and 9% in
depreciation is not an unfortunate side effect of the the fourth quarter of 2009.
table 2: Commodities priCes 2008-2009
Panic Low March Low Low-to- Panic Low March Low Best Post- Best Gain
11/20/2008 3/9/2009 Low Span to Current to Current Panic Close Since Panic
S&P 500 752.44 676.53 -10% 19% 32% 934.70 38%
Oil $48.90 $47.13 -4% 29% 34% $63.10 83%
Nat. Gas $6.76 $3.87 -43% -50% -12% $6.85 4%
Gasoline $1.07 $1.23 15% 66% 45% $1.84 133%
Gold $744.60 $920.50 24% 28% 3% $992.20 33%
Silver $8.92 $12.91 45% 66% 14% $14.77 66%
Platinum $797.00 $1064.00 34% 44% 8% $1222.00 55%
Copper $1.56 $1.62 4% 33% 28% $2.16 70%
Zinc $0.51 $0.54 5% 26% 21% $0.72 53%
Uranium $53.00 $42.00 -21% -8% 17% $55.00 31%
Corn $3.34 $3.46 4% 22% 18% $4.08 50%
Wheat $4.08 $4.53 11% 29% 16% $5.27 59%
Sugar $0.13 $0.14 8% 30% 21% $0.17 46%
Cocoa $2367.00 $2764.00 17% 10% -6% $3200.00 35%
Steer $89.79 $81.63 -9% -5% 4% $89.78 13%
Source www.zealllc.com
8

10. Global Macro Outlook (continued)
is us aaa ratinG at risK? now Commentators want inFlation
Bill Gross, the co-chief investment officer of Pimco High profile economists including Gregory Mankiw,
predicts that the US will “eventually’ lose its AAA former White House adviser, and Kenneth Rogoff,
rating. “Both the U.K. and the U.S. have prospective who was chief economist at the IMF say that the
deficits of 10% annually as far as the eye can see. U.S. economy needs a dose of “good old-fashioned
At some point over the next several years’ the debt inflation”. They argue that a higher inflation rate
of each ‘may approach 100% of GDP, which is a would make it easier for indebted consumers and
level at which country downgrades tend to occur,” governments to meet their obligations. They feel
he said. Gross made this prediction after he said the inflation will “help” the economy by encouraging
U.S. government will need to spend as much as $4 Americans to spend now rather than later when
trillion in additional capital in an attempt to stimulate a prices go up. “I’m advocating 6% inflation for at least
slowing economy. The Federal Reserve said in March a couple of years,” says Rogoff. “It would ameliorate
that it would purchase $1.8 trillion in Treasuries and the debt bomb and help us work through the
housing-related debt to lower borrowing costs. ‘We deleveraging process.” Given the Fed’s inability to cut
need more than that,’ Gross said. Gross feels that the rates further, Mankiw says the central bank should
Fed’s balance sheet ‘will probably have to grow to pledge to produce “significant” inflation. That would
about $5 trillion or $6 trillion.” put the real, inflation-adjusted interest rate deep into
negative territory, even though the nominal rate would
Chart 9: dollar troubles Chart 10: us yields move up
90 5.60
88 Dollar Index 5.50
86 200 Day MA 5.40
84 5.30
82 5.20
5.10
80
5.00
78
4.90
76 4.80
74 4.70
72 5/01 5/03 5/05 5/07 5/09 5/11 5/13 5/15 5/17 5/19 5/21 5/23 5/25 5/29
70 Source: www.agorafinancial.com
Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul
2007 2008 2009
Source: www.agorafinancial.com
9

11. Global Macro Outlook (continued)
still be zero. If Americans were convinced of the The deficit in 2019 is expected by the Congressional
Fed’s commitment, they’d buy and borrow more now, Budget Office to be $1,200bn. Income tax revenues
he says. In advocating that the Fed commit itself to are expected to be about $2,000bn that year, so a
generating some inflation, Mankiw likens such a step permanent 60 per cent across-the-board tax increase
to the U.S. decision to abandon the gold standard in would be required to balance the budget. Clearly
1933. Inflationary increases in wages and the higher this will not and should not happen. So how else
income taxes they generate would make it easier to can debt service payments be brought down as a
pay off debt at all levels. “There’s trillions of dollars of share of GDP? Inflation will do it. But how much?
debt, in mortgage debt, consumer debt, government To bring the debt-to-GDP ratio down to the same
debt,” says Rogoff. “It’s a question of how do you level as at the end of 2008 would take a doubling
achieve the deleveraging. Do you go through a long of prices. That 100 per cent increase would make
period of slow growth, high savings and many legal nominal GDP twice as high and thus cut the debt-
problems or do you accept higher inflation?” Clearly to-GDP ratio in half, back to 41 from 82 per cent.
the central banks of the world have listened and A 100 per cent increase in the price level means
accepted this type of advice as they are taking all the about 10 per cent inflation for 10 years. But it would
steps to create this “useful inflation”. not be that smooth -- probably more like the great
inflation of the late 1960s and 1970s with boom
Chairman oF the Fed on sixty minutes followed by bust and recession every three or four
years, and a successively higher inflation rate after
Asked if it’s tax money the Fed is spending, Bernanke each recession.” In simple terms, Taylor is saying that
said, “It’s not tax money. The banks have accounts 100% inflation will make the current proposed deficits
with the Fed, much the same way that you have an manageable.
account in a commercial bank. So, to lend to a bank,
we simply use the computer to mark up the size of money supply Growth
the account that they have with the Fed. It’s much
more akin to printing money than it is to borrowing.” Frank Shostak, adjunct scholar of the Mises Institute,
“You’ve been printing money?” Pelley asked. “Well, recently stated that “The whole idea that there is the
effectively,” Bernanke said. need for more inflation in order to revive the economy
seems preposterous given the fact that the Fed has
how Can trillion dollar deFiCits be paid been aggressively inflating since the end of last year.
The yearly rate of growth of monetary expansion as
Concern about US and global fiscal deficits is rising. revealed by the Fed’s balance sheet jumped from
Stanford professor John Taylor was quoted in the 3.8% in August last year to 152.8% by December
Financial Times on the US deficit “I believe the risk 2008. At the end of April, the yearly rate of growth
posed by this debt is systemic and could do more stood at 138.6%.
damage to the economy than the recent financial
crisis. To understand the size of the risk, take a look
at the numbers that Standard and Poor’s considers.
10

12. Global Macro Outlook (continued)
how biG is the us deFiCit? inFlation proteCtion
The US Congressional Budget Office projects a What provides better inflation protection –
$1.8 trillion budget deficit for the current fiscal year. government inflation protected bonds or direct
Canada’s entire economic output in 2007 was $1.3 investment in hard assets. Marc Faber summed it
trillion. So the US deficit could buy the entire annual up succinctly when he said “Never ask the barber if
output of the Canadian economy, the ninth largest in you need a haircut. Never ask the realtor if the house
the world, with enough left over to buy all of Holland’s you are considering buying is a bargain at the price
annual output as well. offered. And never ask the government to calculate
the rate of inflation when it can save millions of dollars
how muCh is a trillion dollars? in cost-of-living adjustments.” A comparison of TIPS
returns versus gold return in Chart shows what
A trillion dollar pile of $1,000 bills would reach 69 Faber meant in empirical terms. If you treat gold
miles into space. If you spent one million dollars as an inflation indicator TIPS underperformed gold
every day since the birth of Christ, over 2,000 years materially – not surprising when the inflation rate used
ago, you would be 3/4 of the way to one trillion to determine the TIP rate is calculated by the US
dollars today. Now imagine $10 trillion and counting government.
being printed and spent to bail-out banks and failed
business globally.
Chart 12: inFlation proteCtion
hyperinFlation – GooGle trends - tips vs. Gold
The following is the history of the use of 40% Lipper TIPS Fund Average $35,000
“hyperinflation” as a search term on google over the 35% Annual Gold Price Increase
last 12 months. $10,000 Invested in TIPS $30,000
30%
$10,000 Invested in Gold
25% $25,000
Chart 11: searCh volume index 20%
$20,000
- GooGle trends 15%
10% $15,000
5%
$10,000
0%
-5% $5,000
2004 2005 2006 2007 2008 2009 -10% $0
News Reference Volume 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
0 Sources: Allianz Global Investors, Kitco
11

13. Global Macro Outlook (continued)
FinanCial seCtor Compensation “the guys on Wall Street with the fancy cars need to
learn to drive tractors and the farmers in the years
Among the most profitable areas for Wall Street firms ahead will be buying the fancy cars.”
was producing Asset-Backed Securities (ABSs) and
Collateralized Debt Obligations (CDOs). To produce Jim Rogers
ABSs and CDOs, Wall Street needed a lot of loan
“product” and mortgages were a quick and large
source. Chart 13: ratio oF FinanCial serviCe
waGes to nonFarm private-seCtor
It is simple to generate higher and higher volumes of waGes, 1910-2006
mortgage loans: simply lend at higher loan-to-value
ratios, with ultra-low teaser rates, to uncreditworthy 1.8
borrowers, and don’t bother to verify their income
1.6
and assets.
1.4
The ratio of financial service wages to non-farm
wages seems to indicate that the financial services 1.2
sector is about to shrink - both in absolute and
1.0
relative terms.
1910 ‘20 ‘30 ‘40 ‘50 ‘60 70 ‘80 ‘90 ‘00 ‘10
Source: Ariell Reshef, University of Virginia; Thomas
Philippon, NYU; Wall St. Journal, 5/14/09
12

14. Appendix
table 3: Fao Food priCe index
Food Price
Meat Dairy Cereals Oils and Fats Sugar
Index
2000 90 94 95 85 68 116
2001 92 94 107 86 68 123
2002 90 90 82 95 87 98
2003 98 99 95 98 101 101
2004 111 111 123 107 112 102
2005 115 113 135 103 104 140
2006 122 107 128 121 112 210
2007 154 112 212 167 169 143
2008 191 128 220 238 225 182
April 208 123 242 274 268 178
May 209 132 240 267 272 171
June 214 134 241 274 283 172
July 208 134 239 257 265 202
August 197 136 227 239 222 207
September 185 137 203 226 200 192
October 163 135 185 190 153 169
November 150 127 160 178 133 172
December 143 122 142 174 126 167
2009 January 144 119 122 185 134 178
February 139 114 114 177 131 188
March 140 114 118 179 129 190
April 143 114 117 179 147 194
13

15. disClaimer:
The information, opinions, estimates, projections and other materials
contained here in are provided as the date hereof and are subject to change
without notice. Some of the information, opinions, estimates, projections
and other materials contained herein have been obtained from numerous
sources and Agcapita Partners LP (“AGCAPITA”) and its affiliates make
every effort to ensure that the contents hereof have been compiled or
derived from sources believed to be reliable and to contain information and
opinions which are accurate and complete. However, neither AGCAPITA
nor its affiliates have independently verified or make any representation or
warranty, express or implied, in respect thereof, take no responsibility for
any errors and omissions which maybe contained herein or accept any
liability whatsoever for any loss arising from any use of or reliance on the
information, opinions, estimates, projections and other materials contained
herein whether relied upon by the recipient or user or any other third
party (including, without limitation, any customer of the recipient or user).
Information may be available to AGCAPITA and/or its affiliates that is not
reflected herein. The information, opinions, estimates, projections and other
materials contained herein are not to be construed as an offer to sell, a
solicitation for or an offer to buy, any products or services referenced herein
(including, without limitation, any commodities, securities or other financial
instruments), nor shall such information, opinions, estimates, projections and
other materials be considered as investment advice or as a recommendation
to enter into any transaction. Additional information is available by contacting
AGCAPITA or its relevant affiliate directly.
#400, 2424 4th street sw tel: +1.403.218.6506 www.agcapita.com
Calgary, alberta t2s 2t4 Fax: +1.403.266.1541
Canada