Seeking Alpha: Alliance Grain Traders Still Pulsing With Opportunity

Alliance Grain Traders (OTCPK:AGXXF) (AGT.TO) has done alright since I last discussed the company, with the shares up about 15% over a period where the S&P 500 rose about half that amount and Archer Daniels Midland (ADM) rose about 6%. In that time, Alliance Grain Traders has faced some challenges related to rail logistics, but has also continued to make progress on its food ingredient and retail strategies. While this business is likely to remain a low-margin operation with meaningful year-to-year volatility, the shares don't seem to reflect the potential of the ingredients business.

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Alliance Grain Traders Still Pulsing With Opportunity

Seeking Alpha: Alliance Grain Traders Turning To Higher-Margin Opportunities

Canada's Alliance Grain Traders (OTC:AGXXF) (AGT.TO) already has a pretty decent business going for it. AGT is a global leader in the sourcing and processing of pulses (lentils, peas, beans, etc) and a vertically integrated processor with operations in Canada and Turkey. The company also happens to pay a respectable dividend.

It's not AGT's traditional processing operations that make this a stock worth following, but rather its emerging food ingredient and animal feed opportunities. These businesses hold the promise of not only meaningfully reducing the volatile cyclicality of the business, but also significantly upgrading its margins. Although I don't believe these shares are dramatically undervalued today, I'd keep an eye on them for the prospects of picking up shares on turbulence in the global pulse markets or a faster ramp of the value-added businesses.

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Alliance Grain Traders Turning To Higher-Margin Opportunities

Investopedia: Alliance Grain Traders Needs To Make Better Use Of Its Assets

Ag processing can be difficult on a year-to-year basis, but companies like Archer Daniels Midland (NYSE:ADM) and Cargill have built solid businesses through scale and diversification. It's an open question as to whether Canada's Alliance Grain Traders (OTC:AGXXF) can achieve the same sort of long-term success. While Alliance is a global leader in the processing of pulses (lentils and the like), the company's lack of diversity and poor asset utilization have hampered results in recent years.

Read more here:
http://stocks.investopedia.com/stock-analysis/2012/Alliance-Grain-Traders-Needs-To-Make-Better-Use-Of-Its-Assets-AGXXF-ADM-BG-INGR0619.aspx

Investopedia: How Green Are The Acres At Adecoagro?

It feels like a little bit of the bloom is off the rose that is farmland. About a year ago, farmland was one of the most talked-about investment options, and investors scoured the markets for names like Cresud (Nasdaq:CRESY), Bunge (NYSE:BG) and Syngenta (NYSE:SYT) to find some exposure to the market. While investors no longer have quite the same enthusiasm for these names, patient investors may want to come back around to Adecoagro (NYSE:AGRO). Agriculture is a tough, low-margin business, but short of putting together the considerable capital it takes to buy farmland, Adecoagro may be the next best thing for playing the increasing scarcity of arable land. 

An Ok Third Quarter  
Variabilities in yields, pricing, forex and futures contracts make this company's quarter-to-quarter performance absurdly volatile, so a longer-term perspective is arguably best. Nevertheless, revenue rose 31% from last year, powered by 46% growth from farming operations and 24% growth from other activities, like sugar and ethanol processing.

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http://stocks.investopedia.com/stock-analysis/2011/How-Green-Are-The-Acres-At-Adecoagro-AGRO-CRESY-BG-SYT-ADM-TSN-SLE1121.aspx

(Repost) Investopedia: Does Tyson Deserve Better?

Tyson (NYSE:TSN) is a tricky stock. Commodity food producers like Tyson almost never get the valuation that packaged food companies like Hormel (NYSE:HRL) and General Mills (NYSE:GIS) carry. Even with that being said, though, Tyson has shown itself to be relatively less volatile than other protein producers but still gets no premium for that distinction. If Tyson can somehow maintain its current levels of free cash flow production, this is a stock that value investors should seriously consider.


Very Mixed Performance for Q2
Tyson's fiscal second quarter was a real mixed bag - solid top-line performance, but not a lot of great news on profitability. Tyson reported that revenue grew about 12% in the second quarter, comfortably above the average analyst estimate. Growth was consistently positive across the board, with the company's large beef operations showing 19% revenue growth and the pork business jumping 26%. Even as a laggard, the poultry business was still up 10%.

Profits were not nearly so solid. Gross margin slid to 6.7% from 8.2% a year earlier; not a surprise, given the increase in grain, energy, packaging and other inputs. Operating income fell 12% from last year, and the operating margin compressed by 1.2%. Although operating income in the pork segment more than doubled (and margins were better than 10%), the profit in beef fell by a quarter and poultry income dropped nearly 68%.


To read the full article, follow the link:
http://stocks.investopedia.com/stock-analysis/2011/Does-Tyson-Deserve-Better-TSN-HRL-SFD-SAFM-PPC0512.aspx

Check Out Adecoagro

It probably didn't get much attention during the week, but I noticed an interesting F-1 filing during the week. Adecoagro filed to go public, and I'd suggest anybody with an interest in the farming industry, or a desire to invest in farming operations, take a look. It's a long read, though, so I can't hope to give more than a high-level view.

Who And What It Is

Adecoagro is active in farming, cattle, dairy, sugar, and ethanol in Argentina, Brazil, and Uruguay. The company controls 287K acres, spread over 21 farms in Argentina, 15 in Brazil, and 2 in Uruguay. In addition, the company has 3 rice processing facilities, a 47K+ liter dairy operation, 2 coffee processing plants, 7 grain conditioning/storage facilities, and 2 sugar and ethanol mills in Brazil with 5.2M ton crush capacity.

A bit less than half of the company's land is suitable for crop farming, while about one-third of it is used in cattle-raising. Not surprising for a South American ag company, soybeans make up more than half of Adecoagro's crop production.

Also worth mentioning is that George Soros (or rather, a company owned and controlled by him) owns about one-third of the company.

How It's Doing

Okay, that's the quick summary of what they are. How is Adecoagro doing? A quick read of the F-1 suggests that the company might be going public more to cash in on the buzz over agriculture (and the lack of investable plays) than to exploit solid financials. The company's free cash flow production has been lousy for a years now, and the company's crop yields have been very dicey – while the company has seen a good rebound through the first nine months, 2009 and 2008 were terrible. At least the company's balance sheet is in decent shape – for an ag company, the debt-equity ratio of about two-thirds isn't bad.

All in all, Adecoagro is a company I'm going to try to pay attention to going forward. I haven't dug into the numbers enough yet, but I suspect there is ample room for better financial performance, particularly given the disappointing yields of 2009 and 2008. What's more, it will be a publicly-traded ag company easily bought and sold in the U.S. and that is quite rare.

A Shopping List

On a global basis, there are ample publicly-traded ag companies. In Latin America, there Marfrig, BrasilAgro, Cresud (Nasdaq: CRESY), SLC Agricola, and San Martinho. Of those, only Cresud is listed in the U.S., though some of these ADRs have decent volume (like Marfrig) and trading in countries like Brazil is getting easier and easier.

Of course, there other options around the world as well. China Agri-Industries, China Yurun, Mengniu, Zhongpin (Nasdaq: HOGS), Astra Agro Lestar, Golden Agri-Resources, and Indofood Agri are all worth at least a look, and there are more than a half-dozen palm oil companies of notable size. And then there are Viterra and Canada's Alliance Grain Traders – both of which are perhaps a little easier for U.S. investors to follow.

Whew... a long list to be sure, but I figure anybody who shares my near-obsessive interest in farmland investments might find it to be useful. But it's interesting to me how relatively few options there are that are listed on U.S. exchanges – beyond Bunge (NYSE: BG) and ADM (NYSE: ADM), you pretty much have to look at second-level plays like fertilizer companies (like Potash (NYSE: POT)) or seed companies (like Monsanto (NYSE: MON)).

Maybe Wait For A Pullback?
Given the big spike in food prices, and the rampant media attention that has gone with it, food is a hot space now. Consequently, investors should not expect to find all that many bargains in the space. Companies like Zhongpin and Mengniu have interesting long-term prospects, and companies like Alliance Grain would be interesting on pullbacks, but there are a lot of valuations in the space today that probably won't be sustainable. That leaves investors looking at riskier plays like Monsanto if they want bargains.

So, if you share my interest in the food and ag sector, I strongly suggest looking up Adecoagro's F-1 on Edgar. It's a good read and even if you aren't interested in the company, it can be a good resource for those wanting to learn more about the sector and South American farming in particular.

Disclosure – I own shares of Monsanto

Update - Forgot to mention ... Adecoagro is looking to raise about $400M in its IPO and will trade under the symbol "AGRO".