Adecoagro Has Its House In Order, But The Neighborhood Is On Fire

Although I had some concerns back in April about Adecoagro’s (AGRO) exposure to volatile commodity markets, particularly the oversupplied global sugar market, the shares have done better than I’d expected since then, with a 10% rise that not only beats Sao Martinho, but trounces Cosan Ltd. (CZZ). I believe Adecoagro has helped up better in part because of its low-cost sugar/ethanol operations, as well as its greater capacity to shift production toward ethanol at a time when sugar prices are so weak.

Looking ahead, the ongoing trade disputes between the U.S. and China should continue to help crop prices in Brazil and Argentina, while Adecoagro is also able to take advantage of weaker local currencies and a pretty solid hedging position. Moreover, I think the share price doesn’t reflect the progress the company has made over the years in improving its operations, nor the potential leverage to a larger dairy business. The commodity exposure increases the risk of this stock, but I do think the valuation remains relatively attractive.

Read the full article:
Adecoagro Has Its House In Order, But The Neighborhood Is On Fire