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krk004

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triage - it works both ways, high-energy costs also increases grain production costs . . .

 

Canola (BioDiesel) and Corn (EtOH) prices have obviously been stimulated by energy use applications, but to be honest this is not likely to dissappear so for what ever reason the prices are high and will remain high as production growth is tapering off but demand continues to outgrow supply.

 

The farmer is the lowest denominator with close to little price-making power and many will continue to produce at a loss for some time. The corporte farmers stand to make significant returns, input sellers and asset/infrastructure holders (land, water, silos . . . ).

 

There will continue to be increasing alternative uses for agricultural production including carbon sinks. The key is to be involved in the efficiency side of the equation as 80% of farming operations will alway remain marginal/subsistence operations in my view.

 

The PAG approach is a sector play, but no major economies of scale and no obvious competitive advantage.

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Hi Guys, I do believe it is all about volume and demand.

100 years ago, all properties were of large acreage, 100 thou+ acres, and riding the sheeps back. Step into the 1900's, large acreage was split up into smaller parcels, proved to be not very profitable. The trend in 2k is to accumulate acreage and go for volume planting.

lots of pros and cons although volume will win any day.

 

25 years ago, farmers were told by the wheat board to hang in there as the world population is growing at an phenomenal rate and the world will be begging at australia's door for our produce.

In those 25 years, the return on our commodities actually declined in real terms. I know a guy who sold up and moved to the city because he believed this "dream" for 25 years. His only bgonus was he had foirgotten about shares he owned in the wheat board and left with a $25k bonus from them. Big deal.

 

I am from a farming back ground as well although was fortunate? enough my family got out when I was a teenager.

 

Free trade agreement will screw us as it has done with any other country trying to "bargain" with the USA for the last 200 years.

 

Grab a copy of the new release book "A Game As Old As Empire"

Bernie Fraser did the forward and also links in with KB's sig.

 

Here is a little history of a guy that rode the sheep's back and picked the trend of the day. Notice the bit about buying "several large pastoral properties"

 

GOLDSBROUGH, RICHARD (1821-1886), woolbroker

 

http://www.adb.online.anu.edu.au/biogs/A040294b.htm

 

Think I will stay with the oilers and miners for a while longer.

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Linky to "A Game As Old As Empire"

 

Interview with the author

 

John Perkins, author of Confessions of an Economic Hit Man, worked for years as chief economist at an international consulting firm in Boston called Chas. T. Main. His job was to persuade countries that are strategically important to the U.S. - such as Indonesia, Panama, Ecuador, Iran and Saudi Arabia ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ to accept enormous loans for infrastructure development and then to make sure the lucrative projects were contracted out to U.S. corporations. Saddled with huge debts they couldn't possibly repay, these countries came under the control of the U.S. government, the World Bank and other U.S.-dominated aid agencies that acted like loan sharks, dictating repayment terms and bullying foreign governments into submission.

 

http://www.globalpolicy.org/empire/economy...0216oldgame.htm

 

Our ag sector does not have a chance.......

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Great discussion going here,

 

I think you will find it was Elders, Goldsbrough & Mort at one stage, before eventually/ultimately becoming the Elders we know today (part of FCL).

 

The way I look at it is that we have prices for nearly all the traded agricultural commodities really taking off at the moment. Wheat, oats, soybeans, cattle, etc.

 

This demand could be a short term occurrence (ie drought) or longer term (feeding the India's & China's of the world).

 

Could even be part of a speculators frenzy, where they are looking at the next thing to trade on & possibly make a dollar with.

 

Not sure on how this will go, but I see the agri-sector as somewhat of an offensive & a defensive play at the same time.

 

I am convinced of an almighty correction at some stage on Australian & world markets in the short to medium term. Is this current correction part of it, I don't know.

 

So I like the agri-sector because of the defensive qualities I believe it can provide. As well as the money-making opportunities as well if the market comes back sooner or later.

 

Remember talking to an older farmer some years ago about the Great Depression. He tells the story of his father having numerous people walk onto his farm looking & asking for work. His father's farm still being operational & providing a living.

 

I believe that agriculture will survive should a depression or Kahuna's Nuclear scenario playout (??). We all know it's a business sector that the government will want to survive.

 

That being said, should we have the nuclear fallout in the market & wider economy, the sharemarket will not be the place to be full-stop.

 

Just to show a point somewhat - RIC (which we have discussed lately), bought in before Christmas at 1.16. Fast forward to 18/1, closed at 1.18, yet the overall market has copped it severely. PAG, has settled at ~1.80 since listing on 24/12. NAM has gone off in last few days & ABB is on a nice upward trend for last 3-4 months.

 

Keep the thoughts coming,

 

DYOR & KYOIS. - I currently hold RIC, PAG & ABB. http://www.sharescene.com/html/emoticons/biggrin.gif

 

 

 

 

 

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In reply to: gwydir on Saturday 19/01/08 11:18pm

Our ag sector does not have a chance??????

 

HAHAHAHAHAHHA... I'm sorry but that is one of the most ridiculous statements I have ever heard. Especially if you are trying to base it off conspiracy theories about the US.

 

If you look at simple supply and demand at the moment, soft commodities are looking very strong fundamentally. Admittedly at the moment the price is probably spiked well above its long term trend, but with ethanol chewing up so much corn in the US and other emerging countries demand for food increasing, then things are looking very positive for the Ag sector. And we don't even sell any agricultural products to the US. They are our competitor, and with their consumption of their own produce increasing, the less they are going to be able to compete.

 

The only real threat to the ag sector, the farmers and graziers, is that companies like Monsanto etc are CASHING IN big time. The price of roundup and other inputs are being hiked up just as fast as the commodity prices are rising, if not quicker.

 

I am from a grain farm in QLD, and over the last 25 years, our farm has grown substantially. To make a generalisation that all farms have struggled for the last 25 years is just plain wrong. It all comes down to making smart business decisions, your farming knowledge and ability and of course pot luck when it comes to rain. All the farmers I know have done and are doing very well. Those that have sold up have either done so to retire, which has been very comfortable due to very good land prices, or have gone belly up because of bad business management and taking on too much debt, which is the same as in all industries.

 

I think there are some very good times ahead for the agricultural sector... but thats for everyone else to make their own minds about.

 

Good luck to everyone, no matter what your view is!!! http://www.sharescene.com/html/emoticons/tongue.gif

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In reply to: krk004 on Sunday 20/01/08 10:14am

pukin - fair call. Aussie agriculture is not doomed. The dryland ag and marginal farming opps and maybe a lot of the MDB is doomed, but to call all Aussie ag doomed is a sensationalist view imo.

 

 

krk004 - Agribusiness is very valuable as a non-correlated asset class (hedge), HOWEVER a listed agribusiness as you say will still get belted if the equity-markets get hit for 6.

 

The other option is subsistence farming in a high-rainfall area . . . I've got my little bit of dirt in qld should it come to that. http://www.sharescene.com/html/emoticons/tongue.gif

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No I dont think aussie ag is doomed either but I dont think we are going to have a huge soft commidities boom either especially here in Australia when our $ has been pushed to these levels by the resources boom. In comparison to USA our input costs are a lot higher and in most agricultural markets we are competing with subsidised product. However due to our lack of protection and the constant loss of the most inefficient farmers we have a very efficient ag sector here. However we cant compete even with USA for things like labour cost even less so in developing countries, and as pukin said the US is our main competitor. I dont think the grain scenario can last forever with ethanol unless it is heavily subsidised, I read somewhere you get 1.25 units of energy back for every unit put in.
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Biofuel is not sustainable. The inputs, land degradation . . . are generally ignored.

 

Large scale Geothermal are the ultimate goal, where closed systems can produce a lot of energy for a long time with little 'footprint' both physically and environmentally.

 

There is big money to be made in Australian Agribusiness - its just at the sophisticated end of the spectrum, not the farmers end!

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In reply to: King Baz on Sunday 20/01/08 03:24pm

KB - a bit off topic but...

 

I reckon geothermal is the antidote for dirty coal and nuclear power stations but unless we all start driving electic cars how do moderate the amount of oil we use?

 

I think about 70% of oil consumed in the US is for powering internal combustion engines. If first world countries want to reduce their dependence on oil then the main game is to reduce the amount of oil used in transport.

 

The easiest and most obvious way is by increasing the efficiency of transport. The yanks need to get their efficiency levels down to what the Europeans have (more public transport, more low sulphur diesel engines, smaller cars, slower speeds etc). However that is the option that Bonzai Bush has ducked, going instead for biofuels from corn.

 

May be my blindspot but just cannot see biofuels from grain being sustainable.

 

But where to next - hybrid vehicles, ethanol from cellulose ?? No idea.

 

Another alternative could be the coal to liquids technology pioneered by the South African firm Sassol (amongst others). We have two local players in this area, Linc and Cougar, operating out of Chinchilla and Kingaroy in sthn Qld, but one may not have the technical skills to deliver (Linc - happy to be proven wrong) and the other may not have the financial mass to go the distance (Cougar). Given our enormous coal reserves this to me is the perfect solution (we can continue to use existing vehicles, we get rid of the west's reliance on all the crackpot petro-states, we address pollution / climate issues). Just not sure of the timing or even the success of this option.

 

So back to the issue of the soft commodities boom spiking due to biofuels. Maybe I was too simplistic in my previous posts and maybe it will not go away but I suspect that biofuels will not continue for much longer to be the primary driver of the soft commodities boom.

 

I promise my future posts on this thread will be more on topic... http://www.sharescene.com/html/emoticons/rolleyes.gif

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triage - oil is not going to be replaced until it is no longer affordable. The reality is that even at $150/bbl, oil will be expensive but not absolutely prohibitively expensive. It will slow world growth, but you try telling the gofer in Delhi or the courier in Shenzen that his little motorcycle will cost him another couple of Yuan a week.

 

Sure at this high oil price alternatives look attractive, but not alternatives such as biofuel that will simply cost more to produce and transport and compete with food production.

 

I'm very sceptical about sequestration and clean-coal . . . it still adds energy to the earths system. Been some years since l studied the laws of thermodynamics, but surely something that would capture existing energy (solar or geothermal or wave or wind) would be more sustainable as it is not releasing more energy (ie coal) but rather capturing the energy. Just my simplistic thoughts as a backyard philosopher http://www.sharescene.com/html/emoticons/rolleyes.gif

 

The other distinction l make is about value capturing . . . elevated soft-commodity prices do not translate to increased profitability for all in the value chain! Ask any farmer!

 

The duopoly between the major supermarkets will increase its share at the retail end, but input suppliers (fert/crop protection/seeds) increase prices right to the point where the majority of operations remain marginal! (there are business analysts/rural bankers who are payed to work out the maximum they can extract from the lowest common denominator - farmers).

 

Like we have seen with O&G E&P companies recently (and particularly in this inflationary environment) . . . if you are keen on soft commodities, study the CBOT (l have for a long time) and buy the underlying commodity as this is likely to outperform the producer of the commodity.

 

I am keen on Agribusiness from a resource perspective (land in productive area with reliable rainfall) or from a value-added highly differentiated high value crop perspective, ie Hi-Oleic peanuts, or Blueberries with elevated anti-oxidants, Canola with beneficial oil fractions, pomegranate juice to the Japanese . . . high-value hort . . . the polar opposite to the commodity side of the equation.

 

Some associates of mine are looking at buying purchase options on prime-ag land from distressed farmers. A nice little hedge-fund type arrangement where say by spending $500k you have the option over $5M of land and if commodities improve further the land may be worth $8M . . . and all you do is sell the option to a prospective buyer (hopefully ITC, GTP, TIM, SHV) if you have played your cards right. I'm just dabbling because l prefer the direct exposure as opposed to derivative type exposure because l understand the field well . . . but some options for investment for sure.

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