Look for a soft commodities landing The Australian
Robin Bromby | December 17, 2007
EVERYWHERE we look the talk is of soft commodities. The Economist runs a cover story on the end of cheap food; soft commodities are all the rage on the business television channels; the prices of coffee, cocoa, corn, soybeans and wheat have all been soaring; the Nairobi Stock Exchange is preparing to have a separate board for crop commodities trading; breakout inflation from Ireland to China is being fuelled largely by soaring food prices.
Last week, Pure Speculation pondered how investors here might lash their portfolios to this trend, especially as there are now quite reasonable concerns that the metals might start retreating - and certainly won't be a sure-bet plunge any longer.
The suggestions for soft commodity investments soon landed in our email box.
Simon Guzowski, senior equities analyst at wise-owl.com, agreed there were not many farm-product listed companies, but you could get access through industries that service them - for example, makers of pesticides and fertilisers.
But these tend to be long-term plays rather than being attractive to speculators. There's Incitec Pivot, of course, but its P/E is a high 60.6 times; or Nufarm - one analyst said last week that some other bidder could emerge for that company after the Chinese offer lapsed, with an Indian paper fanning the rumour fire with a report (since denied) that that country's United Phosphorous had started talks with Nufarm.
Warrnambool Cheese & Butter Factory is a food producer, but again is not too sharply priced with a P/E of 21.9.
The Tasmania-based Webster also may be seen as a long-term buy, with its production of carrots, onions and walnuts. It also has a shareholding in Tassal - a company that could be helped by salmon becoming relatively better value to the consumer if other food prices rise.
Investors have until Thursday to get part of the $300 million PrimeAg Australia IPO. It was due to close on Friday but has been extended - the explanation is that the launch was delayed a week. PrimeAg's initial portfolio consists of Brayland, the largest irrigation farm in the Emerald area, another farm west of Condamine in southern Queensland (summer and winter crops) and a third near Warialda, NSW, with crops and cattle breeding.
Top reward for potash
INVESTORS looking for something with a little more excitement could find themselves a broker across the ditch. Tomorrow, NZ Farming Systems Uruguay lists on the stock exchange in Wellington. The company owns a number of dairy properties in Uruguay, which is Latin America's biggest dairy exporter. The new float is a spin-off from another NZ listed company, PGG Wrightson, which recently bought a controlling interest in a Uruguayan seed company.
And then there's potash.
It is big business. Potash Corp of Saskatchewan is worth more than Barrick Gold - the market caps are $US39 billion and $US33 billion respectively.
Potash is a source of potassium which, in fertilisers, raises yields and disease resistance for plants. The potash price has doubled in the past three years.
Reward Minerals is a local play not for the faint-hearted. The company owns the aptly named Lake Disappointment prospect in Western Australia - aptly because Reward's efforts have been frustrated by a native title impasse.
The Martu people wanted a bigger slice of the action than Reward felt it could afford. The company is now trying to resolve the dispute and hopes to get on the ground by April.
That would make potash production possible by late 2009. Australia now imports all its potash, but Reward is hoping to fill a large part of that demand. There's just that native title barrier and, of course, further drilling before Reward can cross the production bridge.
For the faint-hearted, however, Rio Tinto has its PRC potash operation in Argentina and BHP Billiton has farmed into a project in Saskatchewan. In all, about 30,000sqkm in this Canadian province have been pegged for potash exploration, the big driver being the demand in the US for the corn crops feeding the biofuels surge.
