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Thin Pickings For Agri-Investors
ROBIN BROMBY The Australian October 21, 2013 Will we control enough food production to feed ourselves in 15 years In 15 years, Australia will have 28 million people. Will we control enough food production to feed ourselves?. Picture: Sam Mooy Source: TheAustralian AGRICULTURE may be the investment story of the coming decade but, unlike the resources sector, you don’t have a choice of nearly 1000 stocks (good, mediocre and awful). In fact, choice of vehicles is disappointingly small. Jim Rogers was the man who, with George Soros, founded the Quantum Fund. He has been a believer in gold, mineral commodities — anything that is likely to be in short supply and will keep its value in a world where central banks are creating trillions of dollars of new money. He tells US Barron’s magazine that agriculture is going to be one of the best investments over the coming decades. Food prices are going to have to rise dramatically to attract people and capital into farming. “The average farmer is 58 in the US and Australia, 66 in Japan,” he says. “Old farmers are dying or retiring, and young people aren’t going into agriculture. Young Americans go into PR, not agriculture.” He then lists the options for Americans to get into the farm sector, among them banks in agricultural areas, shares in farm equipment, fertiliser or seed companies, and agriculture funds. Unfortunately, we don’t have regional banks, although there are a few companies exposed to the fertiliser business, including Incitec Pivot (IPL), although it seems more enthusiastic about the explosives side of the business. Or there’s Australia New Agribusiness & Chemical Group (ANB), controlled by Chinese interests and expanding its fertiliser manufacturing by going upstream into phosphate mining. Of course, we have a selection of phosphate and potash explorers. But the prices for both commodities are becoming more depressed, and too many investor fingers have been burned since the great phosphate bubble of 2008. Several years ago, your correspondent was expounding to an investor about the need for more investment instruments connected with farming and food as the world population kept growing and the area of arable land kept shrinking. That investor insisted on setting up a meeting with two very canny mining stock entrepreneurs for yours truly to expound on the theme. These gentlemen were polite, carefully avoiding yawning, but were clearly dubious about this whole agricultural thing. It’s still a hard story to sell. So it was encouraging that, in his latest client note, Peter Strachan of StockAnalysis takes up the Jim Rogers line. As Strachan sees it, foreigners now recognise the agricultural opportunities in Australia. In February, PrimeAg Australia (PAG) sold the bulk of its farm properties to a New York-based investment fund that has been building its agriculture exposure. A month later, incidentally, the US fund announced it was financing a farmland research centre at the University of Illinois. More recently, Americans in the form of Archer Daniel Midlands made a bid for GrainCorp (GNC), an acquisition that will require Joe Hockey’s nod. And Canadian interests are one of three bidders for Warrnambool Cheese & Butter (WCB). Local investors will retain access only if the first bidder, Bega Cheese (BGA), is the successful suitor. As Strachan notes, 1 per cent of Australia’s land mass, prime beef-growing country, has just passed to Indonesian interests and buyers from Asia are leading the hunt for grain-growing land. “Long-term money from around the globe sees the value that local owners do not,” Strachan notes. In 15 years, Australia will have 28 million people. Will we control enough food production to feed ourselves, especially if there’s a severe drought? In the meantime, local investors wanting to gain exposure to the global food supply story face very thin pickings. Continue reading
The Housing Bubble Goes Global – Again
By Jeremy Warner Economics Last updated: October 22nd, 2013 Germany’s property prices are rising Not for the first time, the Bundesbank has voiced concerns about rising German house prices. “What the…!” you might exclaim. Compared to the property price inflation many other countries have seen, Germany’s looks tame indeed. Germans are on the whole makers, not property speculators, with most of them still choosing to rent, rather than own. Even so, prices in major German cities have been rising strongly over the past few years. “After the real estate bubbles in the US and several European house markets burst,” says the Bundesbank in its latest monthly report, “the German property market, which has been quiet for many years, became more attractive to international investors.” Germany is one thing, but the same phenomenon is occurring in major cities more or less everywhere. In London, the property crash of 2009/10 is now but a distant memory. Buoyed by frenzied foreign buying, house and apartment prices are again at record highs, with anything halfway decent going to sealed bids. London property, as one New York Times writer recently observed, is the new “global reserve currency”. Nor is this revival in the UK housing market any longer confined just to London and the Home Counties – it’s fast spreading out to the regions as well. The speed with which both the housing market and the credit cycle are turning has taken the Bank of England’s Financial Policy Committee by surprise; in coming months it must decide what, if anything, to do about it, for this is just the sort of thing the FPC was created for. There may already be some kind of a case for a rise in UK interest rates, such is the strength of the more broadly based economic recovery, but we know from experience that marginally higher interest rates are largely ineffective against a nascent house price bubble. There is, of course, a level of interest rates which would be effective, but only one so high that it would eat seriously into discretionary spending and thereby induce another recession. Mass unemployment seems a high price to pay for taming the housing market. So it falls to the FPC. There are basically two levers under consideration – one is simply to increase the capital banks are required to apply to mortgage lending. Another is to recommend the imposition of strict loan to value lending criteria, though the FPC doesn’t have the powers to impose these off its own back; the Prudential Regulation Authority, which is subject to a higher degree of political interference, would have to do this instead. Given that the Treasury is only just introducing the second phase of its “help to buy” scheme, designed specifically to lower the required deposit, there will, presumably be very little appetite for such measures among ministers, where in any case rising house prices are regarded as an electoral bonus. The FPC thus faces its first big test of independence. All the same, there appears nothing the FPC can do to halt the flood of foreign buying, the great bulk of which is for cash and therefore not dependant on UK bank lending. In Hong Kong and Singapore, penalty rates of tax have been imposed on foreign buying, and it may yet come to that. For Britain, a better solution would simply be to increase supply, by reforming the byzantine planning system and thereby allowing a degree of construction on greenbelt sites and farmland. However, this is not in itself going to stop the more broadly based global stampede into prime real estate in the world’s most desirable cities – a much more intractable problem grown out of the dearth of decent alternative investment opportunities. This is in itself partly the result of the ultra low interest rate environment, which has ground returns on bonds down to levels where it is increasingly hard to keep pace with inflation. A general climate of risk aversion since the crisis began has also made companies wary of creating investment opportunities. Michael Kumhof, an economist at the International Monetary Fund, has argued that there is a direct connection between growing income and wealth inequality on the one hand, and asset bubbles and financial crises on the other. If an ever greater share of GDP is being concentrated in the hands of an ever smaller group of people, it tends to get saved rather than consumed. Kumhof’s contention is that these savings will get intermediated to lower income earners in the form of easy credit to sustain their consumption, resulting in an eventual debt crisis. Well, maybe. I’m a little sceptical of this line of argument myself, superficially compelling though it seems. It doesn’t, for instance, explain very high levels of UK investment in the Victorian age, or indeed the repeated financial crises of those days, when credit was not widely available to the masses. The Victorians tended to justify income and wealth inequality on the basis that only the rich were capable of accumulating sufficient wealth to fund investment and thereby create jobs and prosperity for all. In a more equal society, wealth would be consumed, not invested. So yes, there were investment booms resulting in financial crises and busts, but these were not the result of high earners lending their spoils to low earners. In any case, what’s going on at the moment with rising asset prices seems to be somewhat different; this is more a case of growing global wealth chasing a finite pool of desirable assets. There appear no solutions to such a problem, other than to make your country or city a bad place to invest. To do that is only to shoot yourself in the foot. Continue reading
Food vs. Fuel in 2013
Food vs. Fuel in 2013 By MATTHEW L. WALD Workers harvesting sugar cane in Sertãozinho, Brazil, for use in ethanol production.Agence France-Presse — Getty ImagesWorkers harvesting sugar cane in Sertãozinho, Brazil, for use in ethanol production. In coming days, the Environmental Protection Agency’s to-do list will include setting a standard for the amount of advanced biofuels that refiners will be required to blend into gasoline and diesel supplies in 2013. The question is tricky because production in one category, cellulosic fuel from nonfood sources like corn cobs, stalks, wood chips and garbage, has not met the target set by Congress. The E.P.A. has the authority to adjust the quotas as needed, but the issue is complicated. The quotas were laid out in 2007 when Congress established a renewable fuel standard. Under its targets, production of cellulosic fuel was supposed to hit one billion gallons next year, up from 500 million in 2012, 250 million in 2011 and 100 million in 2010. But so far output is near zero because no one seems to have hit on a commercially successful recipe. So far the E.P.A. has had little choice but to repeatedly waive nearly all of the cellulosic requirement, but this has led to bitter complaints from the refiners, who say they are still required to use small quantities of a fuel that does not exist or face fines. Even as the agency waived most of the cellulosic requirement, it kept intact a larger 2.75 billion-gallon quota for “advanced” biofuels in general, which includes cellulosic, ethanol made from Brazilian sugar cane and biodiesel made mostly from soybeans. Production of biodiesel or sugar-cane ethanol is favored because each process emits relatively little carbon dioxide, the predominant greenhouse gas, meaning it has an advantage on the global warming front. Keeping the quota for advanced fuels intact was more or less O.K. when the agency waived smaller cellulosic mandates, said Jeremy I. Martin, a senior scientist in the Union of Concerned Scientists’ clean vehicles program. But it’s going to be a problem if the agency waives a one billion gallon requirement for 2013, he warned. If the overall 2.75 billion quota for advanced fuels is not reduced, the biodiesel and the sugar-cane ethanol will have to make up the difference. And if that happens, Mr. Martin argues, the quota will start putting more pressure on food supplies. Various other industrial users of food, especially companies that raise chickens, turkeys, hogs and beef, have meanwhile been trying to get the mandate for corn ethanol reduced, but the E.P.A. has declined to do so. The biofuel industry has been pushing hard to maintain the quotas, with waivers for cellulosic fuels as needed, year by year. A new industry report catalogs a growing number of efforts to produce cellulosic biofuels, albeit commercially unsuccessful ones. “All in all, the post-election environment in Washington seems to promise continuation of stable policy support for advanced biofuels commercialization and the robust growth of the industry,” Brent Erickson, executive vice president of the Biotechnology industry Organization said in a letter to supporters this month. Mr. Martin’s theory is that E.P.A. should stay the course. “We’re going to have to accept that the cellulosic fuels are late,’’ he said, but it would be better to delay the quotas than to eliminate them. “Going in the right direction a little more slowly is better than going in the wrong direction,’’ he said. Continue reading
