There’s really no such thing as stability when it comes to commodity markets, and so it is with Brazilian ethanol and sugar producers like Adecoagro (AGRO) and Cosan (NYSE:CZZ), as rocketing ethanol prices are likely to start incentivizing at least a partial shift back toward ethanol production. In the meantime, Adecoagro is also enjoying strong crop prices and expanded production capacity as it exits a five-year investment program.
Trying to predict multiyear crop and commodity prices is a fool’s errand, and so I try to focus instead on identifying the better operators. Adecoagro is absolutely one of those, with consistently better-than-average production costs for both its farming products and its sugar/ethanol operations. With expanded and enhanced production capacity and lower future capex, I’m looking for an upturn in free cash flow and capital returns to shareholders, and I believe the shares remain undervalued.
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