Farming companies rise, food processers fall

The much-publicized record drought in the United States Midwest in the so called Corn Belt and the ensuing climb in soft commodities prices has started to have an impact on affected Nordic exchange listed companies as well. There are three farming companies listed in Stockholm, which are all active in the black earth or chernozem region in the former Soviet Union. They were hurt by drought in parts of Russia in early summer, which cut yield prospects in certain regions but started a strong recovery this week.

Black Earth Farming (STO: BEF SDB) hasn’t said much about 2012 harvest as of yet. Trigon Agri (STO: TAGR) has seen some selling pressure ahead of an expected land deal in Rostov which is to be done partly in a land swap with cash and or Trigon Agri shares also going the other way. While Alpcot Agro (STO: ALPA) now also has a geographical hedge of sorts, it is unlikely it is able to increase Landkom’s operational efficiency, which while decent in comparison to many old farms in the region, can use some improvement that much in the first harvest post-acquisition. even still, Black Earth Farming gained almost 15% during the week, Alpcot Agro over 8% and Trigon Agri over 7%.

All of these companies are obviously high risk investments. Not the least of the concerns is how secure their land holdings are: they are mostly handled via leasing arrangements in Ukraine and holding company deals in Russia. Russia’s now inevitable WTO entry might lessen that risk somewhat. Regarding investments in farming companies, one must also remember firstly that in aggregate farmers tend to make more money in times of bad harvest as the demand for foodstuffs is very inelastic, which can mean individual companies or regions benefit, secondly that continued good rice crop has kept things afloat in recent years (and to that end the news from India concerning weak monsoon and such are an added worry) and thirdly that inventories can still take as through the year comfortably and the next big catalyst is Southern hemisphere harvest in the increasingly global market. Also all grains are not created equal even if they have joined corn and soybean, the two most affected foodstuffs, in the run-up.

The numerous food processing (and to a lesser extent retailing companies) haven’t fared equally well with margins expected to be under pressure. The effect also trickles down to bio energy firms and the like. As was already mentioned, fertilizer makers such as Yara (OSE: YAR) have been faring well. Imperfect substitute firms such as fishing companies haven’t been affected