Tag Archives: understanding
Chempolis, ONGC Partner On Cellulosic Fuel, Chemical Production
By Chempolis Ltd. | October 15, 2013 Chempolis Ltd., a Finland-based biorefining technology corporation, has signed a memorandum of understanding (MOU) with ONGC, India’s leading oil and gas exploration company. The MOU acts as a road, mapping the first biorefinery project in India. The signing ceremony took place in New Delhi in the presence of Alexander Stubb, Finland’s Foreign Trade Minister and Panabaka Lakshmi, Union Minister of State for Petroleum and Natural Gas. Beyond the first biorefinery, Chempolis and ONGC are targeting larger production of sustainable biofuels in India, which would reduce India’s dependence on imported petroleum. “India has huge biomass potential and after biofuel mandate by Indian government, the country is certainly taking steps to be at the forefront of biorefining. In addition, Indian companies already have a long tradition to utilize residual biomass from agriculture, especially combustion of sugarcane bagasse and production of electricity. The country also has existing production of bioethanol and related infrastructure. Indian agriculture produces huge volumes of residues that are largely not utilized,” said Pasi Rousu, president of Chempolis’ Asia-Pacific and Americas division. “In cooperation with ONGC, Chempolis would be looking forward to the establishment of biorefineries preferably in areas of Uttar Pradesh, Punjab, Haryana, Maharashtra, Karnataka and Gujarat. The company aims at delivering its technology in co-operation with leading Indian industry suppliers,” Rousu added. Chempolis’ third generation biorefining technology is based on selective fractionation of biomass and co-production of multiple products in a sustainable way. The technology is not just for the production of biofuels (e.g. ethanol), but the produced sugars and lignin can be used as a platform into a myriad of different products. Continue reading
Understanding Farmland Values And The Long-Term Outlook
Sep 30 2013, 08:38 The last decade for agriculture has been the most exciting in many generations. Rising commodity prices and strong domestic and global demand has driven U.S. row crop farmland and other agricultural assets to record highs. Farming used to be a sleepy business that now is frequently on the front page of the New York Times and The Wall Street Journal. Over the last decade, U.S. farmland values have increased 116%, from $1,340 per acre in 2004 to $2,900 per acre in 2013, according to the U.S. Department of Agriculture. The Midwest Corn Belt, the primary farming region of the U.S., has been the leading beneficiary of the agriculture boom, with farmland values increasing over 200% in Illinois and Iowa. The global demand for agriculture has not only created wealth in the U.S., but across the globe from South America, to Eastern Europe, and Asia-Pacific. Jim Rogers said, “the farmers are going to be driving the Lamborghinis,” and this is coming true. In Illinois, the average farmer income was over $250,000 in 2012, up substantially from $66,000 in 2005. Higher commodity prices, increased production, and expense management, have led to the record farm income. Farmers have reinvested their profits back into their operations, increasing the size and scale of their farming operations and driving up farmland values. Farmland values per acre in Illinois and Iowa as of 2013 are now $7,800 and $8,400 per acre, respectively. Yes, farmland has sold for $15,000 per acre and even over $20,000 per acre, but U.S. farmland is a $2.5 trillion asset class and a few million dollar sales are not representative of the overall asset class. U.S. farmland has been an attractive investment for not only farmers, but investors as well. The consistent income, diversification, lack of correlation to other asset classes, and inflation hedge of farmland has been an attractive investment for individuals and institutions. Despite the recent enthusiasm for agriculture, we believe farmland values are fairly valued based on current market fundamentals and have substantial upside. Farmland values, like all assets, are a function of their future cash flows. Commodity prices are just one variable in the equation and production and expenses are keys to analyzing profitability. The average high quality farm in Iowa generates $950 per acre in revenues. We estimate the average input costs for a high quality Iowa farm to be $425 per acre and average cash rents to be $425, leaving a profit for farmers of $100 per acre, which is what most farmers use as their annual profit target per acre. Over the last 40 years, U.S. farmland has sold at an average capitalization rate of 5.0%. Using this historical multiple, with the average cash rent for a high quality Iowa farm of $425 per acre, generates an average value of Iowa farmland at $8,500 per acre, which is $100 more per acre than Iowa farmland is currently valued at. The last ten years have been the “Decade of the Farmer,” but this is just the beginning and we estimate we are in the second-to-third inning of a long-term bull market. We have highlighted a few data points that are important in driving farmland’s returns over the next decade. Rising Global Demand – The global demand story will continue to strain the world’s food supply. The global population is expected to grow from 7.0 billion people to 9.0 billion people by 2050. Over this same time period, food production will need to double to meet the needs of a higher protein diet. Land Scarcity – There are approximately 3.5 billion acres of arable land in the world and the potential for adding a mere 5% over the next few decades. Soil erosion and population growth are also depleting arable land by the minute. Over two acres are disappearing per minute according to the American Farmland Trust. Improving Technology – Precision technology and sustainable farming techniques will allow farmers to increase profitability over the next decade. Efficient use of fertilizer has already lowered costs to 15% of revenues, from 20% a decade ago. Drought and cold tolerance traits will allow farmers to have more stable yields. New technology will have a substantial affect on margins. Expansion of the Corn Belt – Planted corn acreage has grown 17% over the last decade as high commodity prices and improving technology has allowed farmers to plant corn farther north and west. Expanding infrastructure is also changing the direction of grain. Historically grain has been sent to the Mississippi River and the east, but rising demand in Asia has more grain being sent to the west. Multiple Expansion – Despite the rising interest in agricultural assets and low interest rates, farmland values have not seen an expansion in multiples. Over the last 40 years, farmland has been valued at cap rates of 5.0% and farmland still averages 5.0% cap rates in 2013. Conservative Balance Sheets – Farmer balance sheets are the most conservative in over 40 years according to the USDA. In Iowa, 78% of farmland has no debt against it, up from 75% in 2007. Investors Yet to Participate – In Illinois and Iowa in 2012, 85% and 82% of farmland was bought by local individuals, respectively. Investors’ have yet to have a meaningful impact or participation in the asset class. There is less than 1% of farmland currently in institutional hands. Aging Farmer – As of 2007, the age of the average U.S. farmer was 57.1. Over the next decade there will be a substantial change in who is sitting on the tractor as today’s farmers enter retirement. Typically the average parcel changes ownership once every 75 years. We see this generational change as one of the best opportunities to acquire farmland due to the unusually high volume of land potentially changing hands. Over the next decade, agriculture will have a few bumps in the road. Despite the strong demand story, we have highlighted some risks that may be hurdles in the short-term. Rising Interest Rates – Interest rates can’t stay low forever and we have already seen a substantial rise in 2013. A considerable rise in interest rates may prohibit growth in agriculture and farmers access to capital. Washington – Indecision in Washington and to-be-determined Farm Bill has left farmers uneasy about what support the government will provide in the short-term. Macro Economic Uncertainty – The end of easy monetary policy and potential slowdowns in emerging markets may slow the development of the global demand story. Identifying Assets – Rising agricultural asset values is making it harder to find undervalued assets. Ten years ago you would have made money by purchasing anything, now it takes hard work and deep analysis to identify the right assets that will outperform over the next decade. Understanding Farmland – All farmland is not created equal and two properties across the street from each other can have completely different production and economics. Identifying high quality assets that will benefit from the global demand story is key to an allocation in agriculture. When analyzing an investment in agriculture, it is important to look to the future. Farming has changed drastically over the last decade and will continue to develop over the next decade. Today’s progressive American farmer doesn’t merely work the land: he is also salesman, manager, accountant, buyer, marketer, scientist, agronomist, mechanic, and computer expert. Over the next decade, farmers will continue to consolidate and produce larger amounts of acreage, lowering their fixed costs and overhead. Precision farming and lower fertilizer use will increase margins and drive profitability. Farmland is a long-term investment and the focus should not be on commodity prices and yield estimates over the next twelve months, but over the next ten, twenty, thirty years. Farmland is the one variable in the farming equation that cannot be replaced and with sustainable farming methods, an investment in farmland will last longer than we can even imagine. Continue reading
California And Australia Bolster Carbon Trading Ties
Memorandum of understanding comes weeks after Australian Prime Minister Kevin Rudd pledged to accelerate introduction of emissions trading scheme By Jessica Shankleman 31 Jul 2013 California and Australia have agreed to step up efforts to work together to link their respective carbon markets, just weeks after Australia’s prime minister announced he would accelerate plans to replace the country’s carbon tax with an emissions trading scheme. California’s Air Resources Board and Australia’s Clean Energy Regulator yesterday signed a memorandum of understanding that aims to establish a working relationship for the two organisations to co-operate on efforts to curb greenhouse gas emissions . The agreement builds on existing work over the last year, which has seen the two organisations share some of the practical experiences gained introducing a new carbon market. The new framework focuses on measures to increase investment in clean energy generation and improve market integrity, as well deepening collaboration between the two agencies. For example, it will allow the organisations to share information on designing and running carbon pricing programmes and discuss how they could link their markets in future . Mary Nichols, chairwoman of CARB, said the agreement would continue California and Australia’s “productive relationship” as both jurisdictions seek to expand their carbon markets. “It is another step forward in California’s efforts to establish relationships with other programs to continue sharing information and best practices to fight the global danger of climate change,” she said. The agreement comes just weeks after Prime Minister Kevin Rudd said Australia would replace its carbon tax with an emissions trading scheme (ETS) a year earlier than planned if his Labor party were to win this year’s election. Rudd wants the fixed price on carbon to end on 30 June 2014, rather than 2015, with a floating market linked to the European Union’s ETS opening the following day. Continue reading