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

Alpcot Agro operational update comes as well

Alpcot Agro (STO: ALPA) released its own operational update few hours after peer. Following Landkom acquisition, Alpcot has seen a large increase in cropped area compared to last year. The total cropped area is around 130 000 hectares with spring planting of mainly sunflower and corn amounting to almost half of that. The drought in Russia has put some pressure on the winter crops there but rainfall in most of the regions from the end of May onwards has improved current harvest expectation somewhat.

The company stopped short of giving any harvest estimates besides saying that the company expects a greater harvested volume from Ukraine (where the Landkom acquisition greatly raised Alpcot’s assets) than in Russia. Total cropped area in Russia is 78 600 hectares and in Ukraine 54 800 hectares. In addition to the above mentioned crops, the company has a significant amount of winter rape growing in Ukraine. The current prices excluding corn are higher than last year.

Alpcot Agro is trading at a discount to many of its peers, in some cases even in absolute terms despite clearly larger landbank. This can be attributed to the fact that it is a little bit behind the curve, something the company thinks is an advantage as it feels it can utilize methods seen as effective by others. The fact that a still significant portion of the land it controls is in Russian inland also contributes to that. It has made significant investments in the last couple of years using rights issue proceeds. Some of that was to provide a geographical hedge. Further large acquisitions are unlikely in the next couple of years

Trigon Agri updates on 2012 expected harvest

Trigon Agri A/S (STO: TAGR) gave an operational update this morning. The soft commodities producer said that dry weather conditions this spring have negatively affected expected harvest for the full year. The company made the decision to cut back sunflower seeding in Stavropol area as a result. Even still, the company expects to roughly match last year’s harvest due to improved yield prospect in other areas.

The largest crop by seeded area is once again wheat with 41%.This is followed by sunflower at 25%, down sharply from 37% last year. Rapeseed harvested area on the other hand is up sharply from 6% to 17%. Also some corn, barley, soya and sugar beet seeding have been made. The spring sowing has been completed and harvesting is set to start shortly. The total expected harvested area is 86 thousand hectares (down from 89 thousand) with 61% in Ukraine and 39% in Russia. The current domestic crop prices are higher than last year so the company said that if the prices remain or improve in H2, the group is well positioned to show a strong improvement on its full year 2012 financial results. Last year was the first profitable year in company history.

There continues to be great interest in black earth region farming investments. Just last week Pareto Securities compared valuations of Trigon Agri, Alpcot Agro (STO: ALPA) and Black Earth Farming (STO: BEF SDB) to an acquisition made by Cherkizovo Group which included 30 000 hectares of farmland. The investment bank concluded that the three companies are trading at a significant discount to that. Trigon Agri has previously said it aims to acquire a new 30 000 hectare production cluster in Rostov, Russia and to do away with a cluster in Samara. The parties agree that Trigon Agri will pay for the acquisition with 18 500 hectares of land in Samara

Alpcot Agro aims to grow through an acquisition of Landkom

First North listed Alpcot Agro (STO: ALPA), which invests in farmland and associated agricultural operations in Russia and Ukraine should see plenty of action tomorrow morning. The company announced after trading close today that it is offering to acquire Landkom International PLC, which has a 74,000 ha leased landbank in Ukraine. The offering is for an all-share transactions valuing Landkom at 139.3 million SEK based on the average closing price of Alpcot Agro in the last 20 trading days (7.10 SEK). Alpcot Agro closed at 6.40 SEK today.

The Board of Landkom, an Isle of Man incorporated company, is recommending its shareholders to accept the offer. Following completion, present Alpcot Agro shareholders would own 83% of the combined company. The companies’ landbank in Ukraine is in near proximity to one another, allowing for synergy benefits (Alpcot Agro has around 18,800 ha under control in Ukraine).

The acquisition is subject to a n approval from Anti-Monopoly Commission of Ukraine. Landkom has been under some working capital stress as of late and had to retract from its growth ambitions. Landkom has a short term need to refinance 14.1 million USD in trade payables due to its main trade supplier Amako. Other companies in the field (ie Trigon Agri) have said in their quarterly reports, that they are waiting for opportunities of distressed acquisitions to arise. In connection with the planned acquisitions, Alpcot Agro is undertaking a directed share issue through book building process