Tag Archives: sector
Investing In Agriculture – July 2013
Published by Investment Adviser | Jul 01, 2013 The term agriculture usually brings to mind crop prices and the effects of drought or flooding on harvests, but the sector is more diverse than many realise, and weather is not the main driver of investment trends. Instead, the biggest effect on agriculture investing is the improving living standards and changing food habits of the populations of emerging and developing countries. Jake Robbins, manager of the Premier Global Alpha Growth fund, says: “As people become wealthier they are shifting their diet from basic crops, such as rice and potatoes, and eating a lot of meat. So as the demand for meat rises the demand for crops rises almost exponentially. “That is the biggest driver. We saw in 2007-08 that when supply cannot meet demand, you get huge spikes in the price of crops and meat.” Skye Macpherson, portfolio manager, global resources at First State Investments, agrees that this trend is leading to increased demand for many agricultural commodities such as dairy, sugar and meat. She adds: “Interestingly, higher meat consumption is having a multiplier impact on grain demand as animals are quite inefficient converters of grain. Impacting the listed agricultural equities is ongoing M&A in the sector, as unique and high-quality assets are being consolidated. “Most recently we saw activity in the Australian grain-handling industry with ADM bidding for GrainCorp, and in the US pork production sector, Shuanghui International bidding for Smithfield Foods. The sector is also growing, with numerous IPOs and capital raisings taking place in the past 12 months.” Mr Robbins adds that M&A activity has also been seen in Brazil and Norway, highlighting the fact that industry players value these businesses higher than the market does. This is because both the input cost for the grain to feed the chickens and the price you sell the end product for can fluctuate widely. “So it is difficult to predict what earnings will be in a quarter or any given year, so while the long-term trends are very positive because the short-term earnings are very unpredictable, the stockmarket doesn’t like that and so tends to value them quite lowly.” But while changing food habits is one trend, food supply in general and the effect of freak weather remains a factor in the sector, with crops one of the most popular investments. Mr Robbins notes the ‘blue-chip’ option in this area is Monsanto, which develops genetically modified seeds to increase crop yield. “The only problem is we look at stocks for growth, quality and value, and it has got loads of growth and quality but it always looks very expensive, so we haven’t managed to buy that yet.” Instead, as a cheaper way to get exposure he highlights Bayer, a German pharmaceutical company with a division focused on crop sciences that has been growing very quickly. Mr Robbins adds: “Last year was very poor in terms of the harvest, particularly in America as they had a huge drought and a lot of corn was ruined. So currently corn inventories globally are very low. It will take several years of good harvests to rebuild those inventory levels… so we do like corn and any exposure is positive.” Ms Macpherson adds that from a valuation perspective, it has been a volatile 12 months for the sector, but one that has created opportunities. “A significant drought in the US saw soft commodity prices like corn, wheat and soy skyrocketing in the middle of 2012, only to sell off towards the end of the year and into 2013 on expectations that both South America and the US would harvest large crops.” However, Desmond Cheung, co-manager of the BGF World Agriculture fund, warns that investors can get very fixated on crop price developments when a lot of sentiment is already factored in improved supply and lower prices. “Investors should not really be taking the view that the market does not understand the supply improvement. In the past two to three years we feel people look at crop prices as a gauge on whether or not this sector is attractive, but it actually misses out a big part of the investment universe. “We think there is a lot of exciting medium-term development, especially in downstream and midstream firms that would offset some of those firms investors would have in the upstream sectors.” When looking at agriculture, it’s clear there are opportunities globally and with increased M&A action, investors need to take a look at the wider picture instead of only focusing on crop prices. Nyree Stewart is deputy features editor at Investment Adviser Continue reading
Business Leader Calls For Biomass Investment To Power Forest Sector Growth
A PROMINENT South East businessman has come out in support of green energy in the form of biomass electricity as a means to boost the region’s forestry industry and local economy. Adrian de Bruin – who sold his 30.3pc share in the timber giant Auspine back in 2008 – continues to chair the Mount Gambier based de Bruin group, which has branched out to aviation and engineering. With a commitment to the region’s prosperity, Mr de Bruin has called on all tiers of government and private investors to back a biomass electricity plant, which would utilise the forestry’s wood waste to create power. “The opportunity to become a major producer of green energy based on biomass is enormous,” he said. “We are blessed with good rainfall, good soil and good growth rates, but we are just lacking a vibrant timber industry at the moment.” Mr de Bruin said while the forestry sector was suffering, there was still untapped potential. “We’ve got all this available wood fibre and no opportunity for local value adding,” he said. “We could use this surplus material and turn it into electricity that is easy to sell.” He said with significant investment, which he estimated at $150m for a 60 megawatt facility, the plant could generate up to 500 jobs for the ongoing collection and delivery of raw materials. “Collection is where the job generation is because they would need to pick the waste off the forest floor and transport it,” he said. Mr de Bruin said the popular renewable energy source could also generate hot water and steam for the forestry industry, including for kiln drying of timber. “You could place the plant at Tarpeena because it is in a rural area with plenty of land around it,” he said. “It needs a new heat source anyway because the current equipment is getting old.” Mr de Bruin believes a 60 megawatt plant would generate enough electricity for the region as well as enough to be exported outside the South East. “It would need around 600,000 tonnes of raw materials per year but there is plenty out there,” he said. He said the biomass plant, which would be considered a base load energy source, would serve the region’s ongoing energy demand at a constant rate. However with the state and federal governments unlikely to invest, he said they could assist potential investors. “The biggest issue with all green energy is that the costs are higher than it is to produce coal electricity,” he said. “The customer is not going to pay more just because it is green, but the Federal Government could underwrite the carbon credit pricing for the next 10 years so the investor has an assured income. “It is that subsidy that will bring it into a viable economic situation.” He said assisting with planning approvals and providing easy access to water for the plant’s cooling system would also offer added incentive. In addition, Mr de Bruin said a biomass electricity plant would be considered carbon neutral with the carbon dioxide emissions generated by the plant offset by the emissions consumed by the forestry’s plant material. The waste materials used for the plant would also come from existing plantations and would be sustainable and renewable. Meanwhile, the State Government is currently undertaking a $1m study by Finnish experts into the future opportunity for the region’s timber sector. Continue reading
