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Agriculture: The Good and Bad in a Sector that Looks Cheap*
By Martin Tillier, August 14, 2013 MOS) have borne the brunt of the losses in price as evidenced by a chart of an ETF that tracks them, Global X’s Fertilizer ETF SOIL . This has led many to conclude that there is value to be had there, but the news that caused the big drop at the end of last month is still relevant. The Belarusian Potash Company, a joint venture between Belaruskali and Russia’s Uralkali was unwound. This giant producer had enormous pricing power, and the ending of the cartel has produced a sharp drop in prices around the globe. The problem I see is that artificially high prices have, over the years, resulted in increased supply. This level of supply is still there and, at market pricing, it will be years before the supply and demand equation comes back into balance. In a few months, the recent bounce back may start to look like a pause in a medium term decline in the industry. Long term, it will undoubtedly present some opportunities, but the industry may well have further to fall before that happens. Agricultural supply companies not dependant on potash have also underperformed in general this year and the best value may be found there, but again, not all are equal. Monsanto ( MON ) is a controversial company because of their focus on genetic modification. That may continue to weigh on the stock, but my reasons for staying away have more to do with valuation and the technical look of the chart. The series of lower lows and lower highs evident here is hardly encouraging. Couple that with a P/E over 18 and the company looks, at best, fairly valued. The Good Valmont Industries ( VMI ) is not a pure play on agriculture. Their fabricated metal and coatings products have other applications, but the company was founded on irrigation systems and they are still their best known product. With a global concern about water usage and conservation, their expertise in that area should be invaluable in the future. They are a solid, profitable company and a P/E around 12 looks remarkably cheap. In this case, a bottom seems to have been found just above 130, which, if nothing else, gives a decent stop-loss level. Deere & Company ( DE ) is probably the best known agricultural supply company outside the industry, due to their consumer products division. They too have underperformed massively this year, losing a couple of bucks overall. Assuming continued gradual recovery in the consumer area and growing demand from agriculture, DE also looks good value at a P/E under 10. A more global play can be had by an investment in the IQ Global Agribusiness Small Cap ETF ( CROP ). This fund is actually up around 10% YTD, but has still underperformed the market. The fund’s focus on small cap agricultural businesses around the world makes it more risky than DE or VMI, but it is a pure bet on the growth of agriculture around the world. As demand increases, so technological advancement becomes key, and an investment spread amongst small companies makes it more likely that you will have a piece of “the next big thing” when it comes along. As the stock market continues to move basically sideways, the importance of identifying sectors with potential for growth is exaggerated. In the case of agriculture, the opportunity is there, but it is not universal. Internal dynamics could keep the fertilizer suppliers depressed for some time, but in other areas a simple return to the mean will provide a decent profit. We all eat (some more than others: see my picture above) and the world’s population continues to grow, so demand for the end product of agriculture is assured. It is possible to profit from this, but selectivity is the key. *I cannot tell you how strongly I had to resist the temptation to write a headline about “planting a seed” or “reaping a profit”! Read more: http://www.nasdaq.co…7#ixzz2c3QqpE81 Continue reading
The Farm As A Forest
Anju Agnihotri Chaba : Jalandhar, Fri Aug 09 2013 The forests cannot take over farmland, but they can send their trees there. Farmers in Punjab are warming up to agro-forestry as the government sets about efforts to replenish the state’s dwindling green cover. It is under 7 per cent when the minimum required is 20 per cent, and when the National Forest Policy envisages 33 per cent countrywide. “About 83 per cent of Punjab’s area is under crops and as such it cannot be converted into reserve forest. The only alternative is agro-forestry,” says conservator of forests Gurbaj Singh. “Some farmers are doing well in agro-forestry but a larger area needs to be brought under it.” Harjit Singh Dhami of Khun-Khun Khurad village in Hoshiarpur was farming wheat and paddy farming till a decade ago. He found labour and production cost too high and started experimenting with a new option. He first planted eucalyptuses and poplars along the perimeter of his wheat and paddy fields. The returns, when they began to come, encouraged him to expand and he has now dedicated 70 acres in five villages to agro-forestry. He points at neatly lined eucalyptuses on one of his farms, in Hardo Khanpur village, and says every acre can earn him Rs 8 to 10 lakh after seven years while the cost of saplings and maintenance is next to nothing. Compared to other crops, little labour is required. The trees have also improved the quality of his soil, he says. And they are largely pest-free. Agro-forestry need 90 per cent less pesticide, insecticide and fertiliser than paddy does. The water it needs is not even 20 per cent of what paddy consumes; after two or three years the plants survive on rainwater alone. Dhami, who took land on contract for agro-forestry, is looking at crores in seven years after investing a few lakhs. Eucalyptuses harvest in seven years, some other trees in five. One can cut these according to need from the third year of plantation. The demand for timber and plywood from the construction and paper-making industries is huge. “In the third year trees can be used as poles, as filler material in plywood, and as pulp in paper-making,” says Dhami. Harpreet Pal Singh, who is foresting 25 acres at Rahimpur village in Jalandhar district, says the first two years also allow intercropping of wheat and maize. The rainy season is the best for planting, say farmers. The trend started only a few years ago. Punjab has been grappling with a water table gone down, and soil and air pollution due to use of fertiliser, insecticide and pesticide. It is looking at diversification and agro-forestry has emerged as an option. Farmers were initially reluctant but are now taking up small-term (three to four years) and long-term (six to seven years) investment options, says Davinder Singh, who himself has been an agro-forester for decades, long before it became a trend. Singh, who has 16-acre farm at Nainowal Jattan village in Hoshiarpur, is encouraging marginal farmers to take it up. “Because of the good returns, we have been able to motivate a large number of marginal farmers to go for inter-cropping with agro-forestry,” says Hoshiarpur forest officer Dev Raj. “This used to be done by big farmers once. Now marginal farmers are growing trees along with maize, wheat, sugarcane.” Around 70 to 80 per cent of Hoshiarpur’s farmers, mostly marginal, are engaging in agro-forestry along with farming of other crops, he estimates. Sodhi Singh of Sherpur Golind village, Hoshiarpur, grows maize, sugarcane, wheat and paddy besides his poplar and safeda trees. “We rotate the land for farming. After taking the tree crop, we cultivate wheat or paddy on the same land, which gives grains of very good quality as tree cultivation improves the quality of the soil,” he says. “Earlier, rows of trees could be seen only on the sides of the field. Now one can see blocks of trees scattered around the fields in various districts of Punjab,” says Dr Avtar Singh, head of the department of forestry and natural resources at Punjab Agricultural University. “The trees have started moving to farmland, which is a good option under the government’s diversification policy,” he says. He says farmers were overusing pesticides and fertilisers for a higher production of wheat and paddy without thinking of the long-term impacts. Crop diversification through agro-forestry, he says, can be done by systematic growing of trees along with agriculture crops. Continue reading
Farmland Prices Up In Utah, NASS Says
06/08/13 Average farm real estate values, a measurement of the value of all land and buildings on farms, in Utah at $1,900 per acre was up 5.6 percent compared to 2012, according to the National Agricultural Statistics Service, Utah Field Office. Cropland in Utah averaged a value of $2,820 per acre in 2013, an increase of 4.8 percent from 2012. Irrigated cropland in the State was valued at an average of $5,200 per acre, up 4 percent from 2012 while non-irrigated cropland was valued at an average of $1,100 per acre, a rise of 6.8 percent from the year before. Utah pasture land in 2013 was valued at an average of $950 per acre, an increase of 3.3 percent from 2012. Nationally, farm real estate value averaged $2,900 per acre for 2013, up 9.4 percent from revised 2012 values. Regional changes in the average value of farm real estate ranged from a 23.1 percent increase in the Northern Plains region to no change in the Southeast region. The highest farm real estate values were in the Cornbelt region at $6,400 per acre. The Mountain region had the lowest farm real estate value at $1,020 per acre. The United States cropland values increased by $460 per acre (13.0 percent) to $4,000 per acre. In the Northern Plains and Corn Belt regions, the average cropland value increased 25.0 and 16.1 percent, respectively, from the previous year. However, in the Southeast region, cropland values decreased by 2.8 percent. The United States pasture value increased to $1,200 per acre, or 4.3 percent above 2012. The Southeast region had the largest percentage decrease in pasture value, 1.5 percent below 2012. The Northern Plains had the highest increase at 18.4 percent. The full report is available on-line at http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1446 or call Joel Gentillon or John Hilton at 1(800)747-8522. Continue reading
