I’ve written many times of my admiration for SLC Agricola (OTCPK:SLCJY), as management has shown great aptitude in generating above-average returns from Brazilian farmland, while simultaneously looking to maximize the value of its land bank and shift toward a more asset-light strategy by monetizing owned acres at attractive prices and expanding its leased acreage for planting.
When I last wrote about SLC Agricola, I thought the valuation was “more interesting”. At the time, corn was trading at around $3.65/bu, soy at $10.03/bu, and cotton at $0.66/lb. Now those commodities are trading at around $5.60/bu, $14/bu, and cotton at $0.78/lb, so you can probably imagine what has happened to SLC Agricola’s share price since then (up ADRs are up close to 65%).
Not only does SLC Agricola continue to see strong yields from its farmland that are typically above the averages for Brazil, management is locking in attractive prices for the ’21 and ’22 crops through hedging. Management also executed on a very attractive transaction that will significantly expand the company’s leased acreage at good prices.
I don’t believe today’s crop prices are new normals, but I do believe that SLC Agricola’s hedging program will secure at least two more strong years of EBITDA (weather permitting), and I believe the asset-light model and above-average yields will continue to drive good long-term results … albeit not at 2020-2022 levels. I do still see worthwhile potential in the shares on a long-term basis, but investors need to appreciate that in the short term the share price is often heavily influenced by commodity prices (cotton and soy in particular).
Read more here:
SLC Agricola Reaping Booming Commodity Markets And Advancing Its Value-Creation Strategy
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