Weak Yields And Sentiment Weigh Heavily On SLC Agricola

While Cosan Ltd. (NYSE:CZZ) and Cresud (NASDAQ:CRESY) have shot up since the latter part of January, SLC Agricola (OTCPK:SLCJY) has performed more like Adecoagro (NYSE:AGRO) in going nowhere fast. Investors are no longer mad about buying up hard asset plays like farmland, and SLC Agricola has also seen historically bad weather whack its crop yields. Add in the fact that these ADRs weren't particularly liquid even in the best of times and you have a pretty uninspiring set-up for the shares.

Value remains a point of frustration with me. I can tell you that an independent appraisal values the company about 25% more than the market does even if you just look at land values and debt (and give no value to other company-owned assets or any potential appreciation through development). Likewise, a discounted cash flow analysis - typically a pretty ungenerous valuation approach for farming companies - suggests undervaluation of around a third.

It's tempting to think that this year's bad weather won't repeat again next year and that SLC Agricola's proven ability to generate above-average yields and develop its land will be better valued by the market in the future, but the illiquidity of the shares and uncontrollability of the business are both significant factors to consider.

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Weak Yields And Sentiment Weigh Heavily On SLC Agricola

Cresud May Be Undervalued, But Value-Creation Is Complicated

As was the case with Adecoagro (NYSE:AGRO), Cosan (NYSE:CZZ), and SLC Agricola (OTCPK:SLCJY), my last look at Cresud (NASDAQ:CRESY) came near a time of "peak panic" in the markets regarding the outlook for stocks in general and particularly companies exposed to shaky economies like Brazil and Argentina. While I thought that Cresud looked undervalued back in January, I also thought that all of the hassles regarding management's dealings with IDBD (through IRSA (NYSE:IRS), of which Cresud owns about 64%) weren't worth the trouble.

That was a mistake, as the shares have shot up more than 80% since then. Investors have, I think, gotten more comfortable that Cresud management is not going to plunder this company (or IRSA) to support IDBD (now operated as Clal Insurance and Discount Investment Corp.), but also more comfortable with the direction of Argentina's economy and the prospect that reforms to economic and agricultural policies will underpin stronger land values in the future.

I clearly undervalued IRSA when I last wrote about Cresud, in part because I was expecting more money to be diverted toward IDBD. Correcting that mistake and updating the valuation estimates for Cresud's farmland leads to a big boost in my fair value (to about $21.25). That still leaves meaningful upside, not to mention the long-term potential for higher land values and value creation through land development, but investors should note that consolidating the Israeli operations has made the reporting more complicated and speculation on land development is an inherently risky business.

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Cresud May Be Undervalued, But Value-Creation Is Complicated

IRSA Has Some Value And Argentine Leverage, But A Lot Of Headaches Too

As I've gotten older, one of the things I really feel I have learned is that investors ought to demand rich rewards for complexity and risk. Simply put, there are a lot of ways to make a buck out there, and if you're being asked to put up with a lot, there should be commensurate excess returns.

With that, I struggle to be more positive on Argentina's IRSA (NYSE:IRS). I'm not worried anymore that the company's ventures into Israel are going to kill the company through a debt overdose, but I do worry about a potential squandering of shareholder resources and a diversion of management attention away from more profitable traditional pursuits. These shares could be undervalued, and I likewise believe that an ongoing recovery in Argentina and a potential realization of value from the landbank could drive even more value, but honestly... it just looks like too much of a hassle to be worth the risk.

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IRSA Has Some Value And Argentine Leverage, But A Lot Of Headaches Too

Adecoagro's Valuation Looks A Little Too Sour

When I last wrote about Adecoagro (NYSE:AGRO), I thought the company was in place to benefit from an improved political and economic situation in Argentina and its low-cost position in ethanol in Brazil, but I thought the valuation was less than compelling, and particularly next to Cosan (NYSE:CZZ) and SLC Agricola (OTCPK:SLCJY). Since that last article, Adecoagro shares have basically been flat while Cosan has soared, SLC Agricola has gone up a bit (around 16%), and another Argentine farming/farmland play, Cresud (NASDAQ:CRESY), has been quite strong.

At this point, I'm more bullish on Adecoagro again. While low global grain prices are a concern, prices have been quite healthy in the sugar and ethanol business. What's more, the company continues to periodically sell farmland well in excess of appraised value, and the economic reforms underway in Argentina make further appreciation a credible driver. With a fair value around $13.50 to $14.50, Adecoagro isn't shockingly cheap, but I think it is worth the elevated level of risk that goes with an emerging market commodity play.

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Adecoagro's Valuation Looks A Little Too Sour

Seeking Alpha: Cresud And The Cost Of Complexity

With so many stocks out there for investors to choose from, I have never believed that investors are obligated to put up with confusing, complicated, or unfavorable situations just to generate a little extra return. That point has really been driven home at Cresud (NASDAQ:CRESY) in recent months, as investors have grown concerned about the relationship between Cresud's majority-owned IRSA (NYSE:IRS) and Israeli holding company IDB Holding (OTC:IDBZF) (IDBD.TA).

Given that IDB's debt is non-recourse to IRSA and/or Cresud, I'm not worried about IDB "ruining" CRESY, but I am concerned that management is stretching itself far and wide and really becoming much more of a diversified holding company. I suppose that's fine if that's what you want to invest in, but as a vehicle for investing in Argentina (and particularly Argentina's farmland), I'm not sure Cresud really fits the bill for me anymore.

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Cresud And The Cost Of Complexity

Seeking Alpha: Can Better Policies In Argentina Take Adecoagro Higher?

Agricultural and ethanol company Adecoagro (NYSE:AGRO) has been one of the few companies with significant operations in Brazil to do reasonably well over the last six months or so, although most of that outperformance has come since September. I've liked this company for a while, particularly because of its efficient sugar and ethanol operations in Brazil and its undervalued land assets in Argentina, and now it looks as though at least some of the macro factors influencing the company are pointing in a more positive direction.

Brazil's weak economy and weak currency remain real issues for the company, but Argentina's adoption of agriculture-friendly tax and policy reforms should offer a real boost to Adecoagro's farming results in the coming years. Weak global commodity prices remain a challenge, and it may take longer for Argentine land values to appreciate, but Adecoagro still looks modestly undervalued today.

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Can Better Policies In Argentina Take Adecoagro Higher?

Seeking Alpha: SLC Agricola Closer To Dirt Cheap

Like most equities in Brazil, reaching out to grab SLC Agricola (OTCPK:SLCJY) (SLCE3.SA) has been like grabbing a falling knife. While the local shares haven't done quite as bad (SLCE3.SA's shares down about 12%), the ADRs have fallen another 35% or so since I last wrote about the company, as the shares have been hit hard by a weak Brazilian real, some productivity challenges, and ongoing concerns both about Brazilian equities and farming companies in a lower commodity price environment.

The performance of Brazilian equities over the last year or so has been an abject lesson that things can always somehow manage to get worse. Even so, SLC Agricola's share price seems to reflect a level of pessimism that seems out of line with the real fundamentals. Although the company's land is consistently more productive than U.S. cropland when it comes to cotton and soy and not too far out of the running with corn, the market values SLCJY's land at nearly half the value of U.S. cropland. Even allowing that the challenges of the Brazilian market (including higher logistics costs) should demand a discount to U.S. values, I have to wonder whether the market isn't overly discounting the long-term value of SLC's farmland, and by extension, the shares of the company.

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SLC Agricola Closer To Dirt Cheap

Seeking Alpha: SLC Agricola Whammied Well Below Fair Value

In the summer of 2013, I wrote about three South American agriculture companies as Top Ideas. Two of the three, Cresud (NASDAQ:CRESY) and Adecoagro (NYSE:AGRO), have done quite well since then, despite ongoing problems in Argentina. The third, SLC Agricola (OTCPK:SLCJY), has been a skunk - declining about 25% on a triple whammy of bearish ag sentiment, bearish Brazilian land value sentiment, and the depreciation of the Brazilian real (the local currency shares are up 4% over the same time).

At the risk of doubling down on a bad call, I think this reaction is overdone, and that there is some meaningful opportunity here. Calling a bottom in corn, cotton, and soybeans is risky, at best, and I do think it is too much to hope that Brazil's farmland will continue to appreciate at strong double-digit rates. Even so, I think SLC Agricola is getting too little credit for being a very efficient operator with significant underlying land value and the potential to leverage ongoing improvements in Brazilian's transportation infrastructure.

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SLC Agricola Whammied Well Below Fair Value

Seeking Alpha: Adecoagro's Diversity Sweetens The Value

These are rough times for both agriculture and Brazil, but Adecoagro (NYSE:AGRO) may yet be a stock that investors want to look at today. Calling a bottom in agricultural commodities is a fool's errand, but the company has more going for it than just the prevailing price of corn or soy. Adecoagro has established a quality sugar/ethanol/cogeneration operation in Brazil, and should be well placed to benefit from improving conditions. It is also leveraged to the extremely discounted farmland values in Argentina, and can benefit if a new government later this year pursues a more rational set of economic policies.

Adecoagro hasn't outshined Cresud (NASDAQ:CRESY) since mid-July of 2013 (when I wrote up both stocks as Top Ideas), but a 60%-plus improvement in the stock price since then still isn't bad. I believe that it is more than 10% undervalued just on the basis of its sugar/ethanol operations, and if economic reforms in Argentina allow the real underlying value of the company's farmland there to come to the surface, a fair value in the mid-to-high teens is not out of the realm of possibility.

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Adecoagro's Diversity Sweetens The Value

Seeking Alpha: Leveraged To Changes In Argentina, Cresud Can Still Outperform

"You have attributed conditions to villainy that simply result from stupidity" (Robert Heinlein, Logic of Empire)

It is hard to imagine that Christina and Nestor Kirchner could have run Argentina's economy deeper into the ground if they tried, but the reality is that nationalization, protectionism, regulation, currency controls, and other ill-considered economic policies have seriously damaged Argentina's economy. And yet, I think there's an argument to be made that Cresud (NASDAQ:CRESY) can still make sense in an aggressive portfolio.

Cresud should benefit from a change in government later this year, particularly if various candidates follow through on their pledge to rebuild the economy in part around agriculture and pursue ag-friendlier policies (including reducing or eliminating export tariffs). If Argentina's economy does improve, I would expect Cresud to also benefit from a catch-up trade in the value of Argentina's farmland (which should be worth more than it is, given its relative productivity and access to transportation infrastructure). Last and not least, Cresud may be poised to benefit from a bottoming of the ag cycle. All of that said, a lot can still go wrong within Argentina and Cresud's sizable stake in IRSA (NYSE:IRS) means this is not just a pure ag play.

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Leveraged To Changes In Argentina, Cresud Can Still Outperform

Seeking Alpha: Cresud Finally Trading On Some Of Its Potential

Sometimes a little extra attention can make all the difference. I don't want to suggest that Morgan Stanley's bullish initiation of coverage on Cresud (NASDAQ:CRESY) is the only reason the shares have done so well since April, but it can't hurt to have a major sell-side firm beating the drum on an undervalued company. Cresud is still facing plenty of challenges, not the least of which are weak crop prices and a weak Argentine economy, but it seems as though investors are finally a little more willing to give some credit to the underlying potential value of this company's large Latin American agricultural land portfolio.

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Cresud Finally Trading On Some Of Its Potential

Seeking Alpha: Weak Crop Prices Weigh On SLC Agricola

Weak crop prices are music to the ears of BRF SA (NYSE:BRFS) shareholders, but quite another matter for companies like SLC Agricola (OTCPK:SLCJY) and Brasilagro (NYSE:LND). Although the majority of SLC Agricola's value stems from buying undeveloped land and turning it into much more valuable developed land, weak prices are nevertheless bad for near-term sentiment and results. Without the leverage to sugar and ethanol of Adecoagro (NYSE:AGRO) and the leverage to Argentina of Cresud (NASDAQ:CRESY) (and to some extent Adecoagro), SLC Agricola has been left behind this year but still offers some appealing value for the future.

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Weak Crop Prices Weigh On SLC Agricola

Seeking Alpha: Adecoagro Showing Some Life

I know there are at least a few Seeking Alpha readers who own Adecoagro (AGRO) for the potential this company offers in becoming a bigger player in Brazil's sugar and ethanol industries and realizing value growth in its land holdings. I also know that they've gotten a little frustrated with the stock's performance as the company has muddled through worries about crop prices, weather, and issues in Argentina.

The shares did well from the summer of 2013 into the fall and then went to sleep for about half a year. More recently the shares have headed higher again, as Brazilian equities in general have come around and sugar/ethanol producers like Cosan (CZZ) and Sao Martinho (OTC:SRTOF) have rebounded as well. With sugar prices and ethanol prices looking pretty solid, Adecoagro could be in for a better year, though currency moves could create some considerable choppiness in the numbers.

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Adecoagro Showing Some Life

Seeking Alpha: Macro Events Buffeting Adecoagro

Farming is hard enough without the added issues of questionable government actions, but that's the reality of the operating environment for Adecoagro (AGRO). This large South American sugar, ethanol, farming, and land company has had to deal with the "known unknowns" of uncertainties in sugar, ethanol, crop, and land prices, but also the ongoing problems in the Argentine economy, the risk of larger harvests in North America, and now the geopolitical issues between Ukraine and Russia.

Adecoagro remains a patience-testing play on the realization of the underlying value of its land holdings and its long-term expansion plans in sugarcane processing and ethanol production. Today's valuation continues to look well short of that implied by recent land transactions and Adecoagro looks like a good value option for investors who can sit patiently through the ups and downs.

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Macro Events Buffeting Adecoagro

Seeking Alpha: Poor Yields Sap SLC Agricola

Three out of four will have to do. My Alpha-Rich calls to buy South American ag companies Adecoagro (AGRO) and Cresud (CRESY) have both worked out well, with performance well ahead of the S&P 500, and my relative bearishness on BrasilAgro (LND) has likewise worked out with a share price decline of 10%. SLC Agricola (OTCPK:SLCJY) is the exception and the stock that has not performed as I had thought it should. While the 8% return from my call has basically matched the performance of the Bovespa, it lags the performance of the S&P 500 and the performance of the Brazilian-listed shares (SLCE3.SA), which have risen about 18%.

Blaming currency moves and/or skittishness about land values in Brazil is fine to a point, and I do think that the disappointing cotton harvest played a significant role. Management isn't really changing much about their operating philosophy, though the company's decision to lease land instead of buy it does give some reason for pause. I do believe that SLC Agricola remains one of the best-run ag companies in the market and I continue to believe that the shares are undervalued at these levels.

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Poor Yields Sap SLC Agricola

Seeking Alpha: Better Times, Worse Times For Cresud

I'm pretty happy with the calls I made on South American agriculture companies back in July of this year. As I discussed yesterday, Adecoagro (AGRO) is up nearly 20% from my Alpha-Rich call, while BrasilAgro (LND), my least favorite of the four, is down more than 10%. SLC Agricola (OTCPK:SLCJY) has been something of a disappointment, up only about 5%, but my high-risk/high-reward call Cresud (CRESY) laps the field with a better than 40% return from my initial recommendation.

Cresud is in a tricky spot. On one hand, the end may well be in sight for the Kirchner brand of Peronism and that should be good for Argentina's economy. On the other hand, Argentina's economic history generally suggests that a change in government is more of a distinction without a difference. Elsewhere, I believe Cresud's land values are likely understated and that the company is unlikely to see the same bad weather that has hurt yields in recent yields, but farming is inherently unpredictable and the problems in Argentina are restricting the company's growth and value-creation potential.

On balance, Cresud is still undervalued. Its undervaluation is roughly on par with that of Adecoagro, and choosing between the two seems to me to be more a matter of whether you prefer larger upside or smaller downside.

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Better Times, Worse Times For Cresud

Seeking Alpha: Adecoagro's Discount Remains Stubbornly In Place

All things considered, I'm happy with how Adecoagro (AGRO) has done since I made this stock an Alpha-Rich pick back in July. The shares are up about 19% since then, well ahead of the 8% rise in the S&P 500, the nearly 12% rise in the Bovespa, and the 6% rise in the iShares Brazil Index ETF (EWZ). This appreciation has come despite a drought-induced disappointing crop yield for 2012/13 and a sharp slowdown in the rate of appraised land value accretion, as improvements in sugar and ethanol have certainly helped.

Even with a double-digit improvement in Adecoagro's share price, I'm still pegging this stock as a market-beater from here. The nature of growing crops is inherently risky, and the steep price for Argentine CDS shows that there are definitely good reasons to discount the value of Adecoagro's Argentine farmland. Despite that, I believe this company's farmland is still undervalued, I believe the company will continue to grow its profitable sugar and ethanol business, and I'm willing to bet that droughts are not going to occur every year. With that, I believe these shares are still at least 30% undervalued.

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Adecoagro's Discount Remains Stubbornly In Place

Seeking Alpha: Cresud Is Confounding, But Trading Much Too Far Below Fair Value

Having given overviews of South American agricultural companies SLC Agricola (SLCJY.PK), Adecoagro (AGRO), and BrasilAgro (LND), I close the tour with Argentina's Cresud (CRESY). I'd like to say that I left the best for last, and maybe I have, but I think it's closer to the mark to say that I've left the most confounding one for last.

Make no mistake, Cresud has a lot of worthwhile assets, including productive farmland in four South American countries, a controlling stake in a significant Argentine real estate developer, and a major stake in BrasilAgro. At the same time, though, Argentina is going through another bout of significant political and economic turbulence, and I don't think anybody can say that means for agricultural exports out of Argentina, land values within the country, and/or the company's ability to pay cash dividends to foreign shareholders.

Assuming that nothing dramatic changes regarding the operating framework for the company in Argentina (and Brazil) and that land values stay strong, Cresud could well be the cheapest of the four companies I've surveyed. At a minimum, it's definitely the most diverse collection of assets.

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Cresud Is Confounding, But Trading Much Too Far Below Fair Value

Seeking Alpha: BrasilAgro Has Valuable Land, But An Uncertain Model

As I work my way through the South American ag giants, I now turn my attention to BrasilAgro (LND). BrasilAgro has done a pretty remarkable job of getting "potentially" arable land under cultivation, having nearly doubled its land under cultivation since 2010 and nearly quadrupled it since 2008. Moreover, management appears pretty smart about putting that land to best use, adjusting the planting of soy, corn, sugarcane, and cotton in response to market conditions.

All of this sounds great, but for the sizable stake that Argentina's Cresud (CRESY) and other foreign investors hold in the company. Brazilian law is stacked against the acquisition of land by foreigners, and that would seem to limit BrasilAgro's ability to further expand its land development operations. Though I do believe BrasilAgro's land is worth quite a lot, I have serious concerns about the long-term model and the company's virtual "pure play" vulnerability to Brazilian land values. With those risks, I'd prefer the potential offered by other South American ag companies like SLC Agricola (SLCJY.PK) and Adecoagro (AGRO), and perhaps Cresud as well.

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BrasilAgro Has Valuable Land, But An Uncertain Model

Investopedia: Afer A Strong Recovery, What Moves ADM From Here?

I've had a love/worry relationship with Archer Daniels Midland (NYSE:ADM) for a while now, as I do believe that the Street is often too negative about a business that is admittedly very low-margin and unpredictable. With the stock up more than one-third from its November 2012 lows, though, it is harder to argue that the stock is unfairly neglected by the Street. Longer-term opportunities in Asia will take time to materialize, which makes a strong U.S. crop and the speedy close and integration of GrainCorp all the more important.

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