Tag Archives: management
Residents and business owners are trying to pick up the pieces(westgate aftermath)
Nearly two-weeks have passed since the mass shooting at the Westgate mall in Nairobi. The mall area where more than 67 people were killed is still in shamble… Continue reading
Investing For The Future Surge In Commodity Prices
Sep 23 2013 Buying farmland isn’t what it used to be. As stated by British born investor Jeremy Grantham in a re cent Wall Street Journal Article : “The investment implications are, of course, own stock in the ground, own great resources, reserves of phosphorous, potash, oil, copper, tin, zinc-you name it…and the most important of all is food. The pressures on food are worse than anything else, and therefore, what is the solution? Very good farming, which can be done. The emphasis from an investor’s point of view is on very good farmland” Increasing urbanization has changed the view on farmland in regards to investing and inflation protection. This disconnect hasn’t stopped many institutional and large investors, like Grantham, from seeing value in the “nooks and crannies” and adding high quality farmland to their portfolio’s. Arable land demand has increased substantially in the last decade as attested by record farmland values. The U.S. average price of farmland increased nearly 9% in 2011 and nearly 10% in 2012. (click to enlarge) (source: NASS ) On a global level, China’s Xinjiang Production and Construction Corps recently purchased 7.4 million acres of farmland in Ukraine . Indonesia also announced they were looking to buy 1 million hectares (roughly 2.47 million acres) of Austrialian farmland for cattle production. The growing number of countries purchasing farmland capacity seems to point to future concerns of food supply. As the Dow Jones Industrial and the S&P continue to touch record highs, investors may want to begin looking at alternative investments that have low to negative correlations to the “traditional” asset classes. You can invest in farmland and agriculture in a variety of ways. Below are few ways to play continued returns in farmland. Gladstone Land Corp ( LAND ) – A U.S. based farmland investment company that currently offers a plus 9% annual distribution. It owns and leases farmland in Florida, California, Michigan and Oregon with appraised land value of $79 million. The distribution is paid monthly which should attract income investors. MarketVectors Agribusiness Index ( MOO ) – A diversified agriculture ETF with holdings in a variety of the largest agribusiness companies globally. Holdings include Bunge ( BG ), Archer Daniel Midland ( AMD ), PotashCorp ( POT ) and Deere ( DE ). Cresud ( CRESY ) – An Argentinean based agriculture company that currently owns roughly 2.4 million acres of farmland in Argentina, Brazil, Paraguay and Bolivia. CRESY produces a variety of crops consisting of soybeans, corn, and sugarcane. It also has operations in beef cattle and milk production. In the second quarter , Cresud sold 4 of its farms for roughly $60.5 million and saw large gains in its farmland development business. CRESY is currently trading down roughly 60% from its highs back in late 2010. Many farming companies have struggled to release value for shareholders with the drop in crop prices but now many are beginning to see value with the sale of farmland. Adecoagro SA ( AGRO ) – Adecoagro is a Luxemburg based small-cap agriculture company. AGRO operates on roughly 300,000 hectares of land throughout Brazil, Argentina and Uruguay and produces a variety crops including sugar, corn, soybeans, cotton, rice and dairy. Since peaking in March 2011 at $13.91 a share, Adecoagro is currently trading near its lows at $7.45. I like AGRO for many reasons, but primarily due to it currently trading at a discount to the value of its land given recent sales. Along with its variety of crops, Adecoagro is also a large producer of ethanol in Brazil which has stabilized revenues to a certain degree in recent quarters as energy prices have remained high. As referenced earlier, some large investors have been heavily investing in agriculture with the value of farmland in fertile areas increasing substantially. AGRO is no different. Currently Soros Fund Management has a $200 million stake (roughly 21.3% ownership) in the company, making AGRO the one of the largest small-cap positions the fund has. Capitalizing on the value of its land in the fourth quarter of 2012, AGRO sold a portion (51%) of its stake in the Santa Regina Farm located in Brazil for $13 million (around $7,000 per hectare). AGRO purchased the entire property for $2.3 million ($625 per hectare) in 2002 and is expected to sell its entire portion of the land for a combined $26.1 since the buyer exercised its option to purchase the remaining 49% for $13.1 million in July. When calculating the cost of improvements that AGRO put into Santa Regina, the company disclosed they realized an internal rate of return around 34%. In terms of earnings, AGRO recorded adjusted EBITDA of $41.3 million for Q2 2013 up 39.3% from same period 2012. The total 6 month 2013 EBITDA is also up 123.2% to $70.5 million. As indicated by its Q2 press release, despite low agricultural prices AGRO has increased margins by 12.3% in 2013. This is a very good sign moving forward. Despite the fact that 70% of its 2013 earnings are expected to come from sugar and sugar based products (ethanol), the value of the land and the growing demand for its food products is hard for an investor to pass up. Farmland has long been considered to be the ultimate safe haven investment and now appears to be a good time to own a piece of the “farm”. Commodity Portfolio I currently own AGRO, ADM and SCPZF.PK for farmland exposure. My current commodity portfolio holdings and percentages are below. As I had mentioned in previous articles , I am expecting inflation to tick up as we enter into 2014. In response, I have been transitioning into an overweight commodity portfolio. Over the last year I have been taking profits as the market as climbed back from lows in 2009. I recently took profits in a few positions including Microsoft ( MSFT ), The Sherwin-Williams Company ( SHW ), Omega Healthcare Investors ( OHI ) and Wells Fargo ( WFC ). From my perspective, the economic outlook doesn’t support continued investment in those companies. A softening U.S economy and high debt levels will push investors into safe havens and real assets. Going forward I will be looking to add investments on my watchlist and trim other positions. It will be interesting to see how an overweight commodity portfolio will perform relative to the rest of the market. Continue reading
Global Farmland Offers Potential For Asset Deals
As the world’s population swells beyond seven billion and emerging markets’ appetite for food grows, Canadian institutions are getting increasingly hungry for agribusiness and farmland acquisitions abroad. Canada’s pension funds have long been putting their money into mining, energy and infrastructure, and more recently luxury retail brands, but now many are snapping up swathes of arable land or creating special investment vehicles to explore opportunities in agriculture. “We’ve seen this uptick in interest in investing in agricultural assets, and, I think the growing importance of food production overall in the world,” says Grant Jameson, who heads up the Canadian agribusiness practice at Norton Rose Fulbright. Canadian institutions, tired of the lacklustre returns in the market, are seeking options with better yields than gold and government bonds, such as agriculture, experts say. As the global standard of living rises, so too does consumer desire for different and fresher types of food, says Jeff Barnes, a partner at Borden Ladner Gervais LLP in Toronto. “As people get more flush, one of the small luxuries is to look a little wider for their food. And that’s going to feed agribusiness.” This year, Canada Pension Plan Investment Board launched its agriculture investment program, and made its first direct farmland investment in a portfolio of U.S. farmland. “These assets have historically delivered stable risk-adjusted returns but, more importantly, the outlook in the global agricultural market in the coming decades is positive due to increasing demand for a wide variety of agricultural products as populations and incomes rise in emerging economies,” CPP’s 2013 annual report states. CPP’s initial focus will be the U.S., Canada, Australia and New Zealand, it added. Meanwhile, the Ontario Teachers’ Pension Fund at the beginning of this year created a “natural resources” investment asset class. Teachers says it will look for “new opportunities in oil and gas and agriculture.” Last year, Caisse de dépôt et placement du Québec and British Columbia Investment Management Corp. joined with U.S. financial services company TIAA-CREF to create a global agriculture investment vehicle, with $2-billion earmarked to buy farmland in the U.S., Australia and Brazil. In 2011, Alberta Investment Management Corp (AIMCo), joined a forestry management firm in a $415-million acquisition of Australian timberlands — options for which chief executive Leo de Bever said included reverting it to agriculture. Farmland, with its steadily rising prices, is a tantalizing investment option – and one that provides interim income by leasing it to agricultural operations, says Mr. Barnes. “From the point of view of the investor, you are buying the land and you’re leasing it back to a farmer so you’re getting current yield,” he says. “The long-term bet is that this is an asset that people believe will be extraordinary in terms of how much it increases in value.” Canadian farmland values have risen steadily over the last decade, according to Farm Credit Canada, but spiked last year. During the second half of 2012, prices on average rose 10%, which is the highest since the organization began tracking farmland prices in 1985. The cost of farmland across the country in 2013 is at record highs, according to real estate firm RE/MAX, with low inventory pushing up supply in 15 out of the 17 rural markets it tracks. The greatest upswings were in Saskatchewan and Alberta. For example, the price per acre in east central Saskatchewan was $850-$2,500 in 2013, up from $650-$1,250 just two years earlier, RE/MAX said. The price hikes in southwestern Ontario have been particularly steep, according to farmland appraiser Valco. The average rate of increase over 10 counties has been roughly 25% per year since 2010. Land can cost upwards of $15,000 per acre. Farmland values across the globe between 2002 and 2010 have risen up to 1,800%, according to the Global Farmland Index compiled by U.K.-based real estate firm Savil. The biggest upswings have been in emerging markets, such as Romania and Hungary, it said. But the fact that prices have escalated so rapidly is a problem for potential investors, says AIMCo’s Mr. de Bever. He wonders whether the investment potential for farmland has run its course. He explains that the rationale for investing in land is that, with rising demand for protein in the Far East, existing landstock will become more valuable. Yet he points out that land values operate on a long cycle, and that the recent run up in value has been compressed into a short timeframe. “It’s not clear to me that any increase in farm prices is going to be rewarded with an appropriate return.” Still, Mr. de Bever says AIMCO, and other investors, will keep an eye out for farmland acquisitions — albeit a cautious one. “My guess is that there is still going to be quite a bit of demand. My concern is that I would be very picky and make sure that you’re buying right.” Mr. Barnes expects Saskatchewan to remain attractive, where land parcels are larger and the prices are a bit better. Australia remains attractive too, given the similarity in governing structures, compared to places with more instability such as Africa, he says. Other factors that will influence future demand include the trend of using technology to convert unsuitable land into arable land, in parts of South America, Mr. de Bever says. Some parts of Africa will emerge as better investment possibilities once they stabilize politically. “It is one of the areas where you will for the next while see a lot of growth,” Mr. Barnes says. “Whether it will be ticked with pluses and minuses, I don’t know. But it’s certainly an area that is very much in the front of peoples’ minds, especially since other hard commodities like metals are not so much in the front of their mind right now.” Financial Post Continue reading
