Thanks for the response RosyOutlook. Yes as an agricultural, or...

Thanks for the response RosyOutlook. Yes as an agricultural, or lets say soft commodity business, SHV is subject to an incredible number of variables some of which are controlable only to a small extent including:-
- rain and weather conditions
- disease, fire etc
- maturity profile of trees
- access to water, water allocation and water cost
- fertiliser cost and other inputs
- almond varietal mix
- USD price for various varietals
- AUD/USD exchange rate
These are as I said largely unavoidable risks (hedging may help in some cases but it would seem only at the margins - obviously the company does have control over orchard age profile and varietal mix). I suppose my comment about the risk of losing the Olam contract is that SHV stand to lose nearly half of their EBIT through a single contract loss. If this happens SHV may struggle to generate the kind of earnings they will earn this year for another few years as their own orchards ramp up in maturity and production.
In terms of variables i think the almond varietal mix, maturity profile of trees and access to water and cost (given recent rains and allocations) are in favour of SHV in the medium term. Also from all accounts the fundamentals driving the USD price of almonds per KG appear promising. A suppply crunch in a few years could expect to increase prices provided market demand continunes on its recent 10 year historical CAGR of 8%.

What is amazing however is the the AUD/USD exchange rate. At current levels this will significantly hurt earnings because as you say a significant proportion of almond sales are export driven (50 to 60% I think I have read). I think you are spot on also about the risk that Australian domestic consumers will potentially have the capacity to purchase US almonds at cheaper prices if the AUD continues on its march - so exchange rate also has the pontential to hurt domestic earnings as well. If the AUD stays above parity for the next one to two years then surely this will take the wind out of the ramp up in production brought on by better maturity profile of orchards. Then if they lose the Olam contract at the end of 2012 then well perhaps earnings per share of .40 to .50 for the full year will look like a bit of a fantasy???

I am currently living overseas and am paid in a USD linked currency. On a recent trip home to Oz I was quite shocked at how expensive a lot of things seemed. On a purchasing power parity basis the AUD seems significantly overvalued. However the FX markets work in strange ways and a fall back to say 70 to 80 cents would seem less likely at least in the short term then say a move between 1.00 to 1.15???

Anyway I remain very interested in SHV. I think I will remain on the sidelines at the moment. I think the weather issues you point out, along with the FX issue may result in the possibility of being able to pick up SHV for less at some stage this year.