Download - The AGRI-FOOD VALUE · PDF fileThe AGRI-FOOD VALUE VIEW ... ELLIOT WAVE PROJECTION ... The oscillator for the Agri-Food Price Index, as shown in the top graph,

The AGRI-FOOD VALUE VIEW“Wealth Creation Through Global Agri-Food Investments”

Volume 2014, Issue 8 / #90 September 2014

BREAK EVEN & CORN

Farmers are not like technology andinternet companies. They have to makea profit. How many acres of any crop areplanted is dependent on farmers’expectations of making a profit. For thatreason we are going to take a look at thebreak-even cost of production for U.S.corn farmers. In doing so we will alsocompare the price of U.S. corn to thatbreak even cost of production, and thenmake an attempt at estimating theimplications of that relationship. Beforereading on, take a minute to look at thechart top of the second page.

Textbook definition of break even is thevariable costs per unit. Variablecosts(VC) are those that go directly into the product being produced. If zero units were produced, variablecosts would be zero. Excluded from this definition are overhead like rent, insurance, management salaries,etc. For farmers variable costs include the obvious, seeds, fertilizer, pesticides, fuel for equipment, etc. If thecrop sells for more than VC break-even, the farmer will have money to pay land rents, bank loans, interestexpense, etc. Those expenses generally fall into a category called fixed costs.

A second definition might be referred to as total cost (TC) break even. That amount would be the total costsof the farm divided by number of bushels produced. From reading the press this seems to be the focus of mostfarmers. In the chart on the next page we will take a look at both calculations for U.S. corn’s break-even price.All of this data comes from the USDA which gathers a massive amount of data on the costs to produce anumber of crops in the U.S. We are using the data for the average U.S. corn farmer. No farmer’s situation willexactly match that data, but we are more interested in the aggregate situation.

THE AGRI-FOOD VALUE VIEWNed W. Schmidt,CFA PublisherSchmidt Management Company

13364 Beach Blvd. Suite 812 Jacksonville FL 32224Phone: 352-409-1785 Email: [email protected] email these thoughts to subscribers about 4 of the month.th

OUR SUBSCRIPTION LINK IS AT: www.agrifoodvalueview.comThis written effort is simply an attempt to report on matters relating to agricultural-based wealth. Wise people should not believeeverything we write. All performance numbers are for hypothetical paper portfolios, and do not represent actual transactions orperformance. No performance numbers, real or imaginary, say anything about what might happen in the future.

Questions or comments? Email us at: [email protected]

http://www.agrifoodvalueview.com

mailto:[email protected]

The Agri-Food Value View September 2014

The Agri-Food Value View Philosophy: The consumption of food and agricultural products is afunction of the size of the population and the per capita disposal income. These two factorsdetermine Global Agri-Food revenues. Economic expansion in the Asia-Pacific region combinedwith the demands for renewable energy sources will greatly increase the growth of Global Agri-Foodrevenues. Investors that position themselves in front of this growth dynamic are likely to benefitfrom it. The Agri-Food Trinity, prices of food and agricultural products, the economics of companiesinvolved, and the value of agricultural land, should enhance investor wealth.

In chart to right are presentedtwo sets of data, one is for a highcorn harvest, green bars, and oneis for a low harvest, red bars.Note that the cost per bushel ishigher for the low corn harvestas fewer bushels are produced,raising the costs associated withproducing each bushel. Second,we are concerned with theimplications for next year, thatcorn harvest to be planted in theU.S. in Spring 2015.

First set of bars is Harvest Price,the price for December cornfutures of ~$3.60 per bushel.Second set of bars are the Variable Costs per corn bushel, ~$2.30 for a high production year. Third set ofbars is the contribution to profits aftercovering variable costs, ~$1.30 forhigh production harvest.

Fourth set of bars is where weobserve the problem. Total costs percorn bushel in a high production yearare ~$4.30. Based on survey data, thisseems to be the number on whichfarmers focus. Final set of bars showthe problem faced by U.S. farmers.At a price of $3.60 for corn, a U.S.corn farm loses money. More on thislater in report. SOYBEANS: Soybeans are thesecond most important source of

“Wealth Creation Through Global Agri-Food Investments” of 28


vegetable oil, accounting for 27% of global vegetable oil production. As soybeans are crushed to make oil,the remaining soybean meal is a critical source of protein for animal feed. Soybean meal represents 68%of global protein meal production. Given the global demand for animal protein, the demand for soybeanmeal should expand over time.

Remember too, soybean production isgenerally limited to a NorthernHemisphere band running throughthe middle of the U.S. and Chinawith a Southern Hemisphere bandrunning through Argentina, Brazil,and India.

Soybean harvest in both the U.S. andSouth America are expected to begreat, for the second year in a row.That harvest “luck” is unlikely to berepeated. In the middle chart ofnumber of days of consumption incarryover supplies, the tallest bar isfor crop year 2015 which began thefirst day of September and runs through 31 August 2015. That is the crop now in the ground in the U.S.and China. Real question of importance deals with by how much consumption will expand in the yearahead and what will be size of soybean production in crop year 2016. That is the crop that will be plantedin the U.S. in Spring 2015. We project that demand will be stronger than supply in that crop year.

China, bottom chart, will have only a little more than fifty days of supply in inventory, and that shouldmake for strong import demand. WORLD EX, which excludes U.S., China, Argentina, and Brazil, willhave only modest reserves. Argentinaand Brazil will have massive reservesgiven that production there farexceeds domestic consumption.

Given the high cost of transportationin terms of costs and wastage,Brazilian soybean farmers are goingto be under serious financial pressure.Given the difficulties in obtainingfinancing in that country, total grainproduction there could experience arare decline. Economic problems inArgentina may also cause a reductionin grains plantings. Most of theimpact of currently low prices will befelt in corn.



ELLIOT WAVE PROJECTIONOne factor that cannot be reasonably forecast and incorporated into a longer term outlook is the weather.2014 has been a year of “great” weather in nearly all the U.S. thus far. That came after 2013 which wasa year of “good” weather. We need to remember that the average weather is any region is not “great” everyyear. We can with near certainty forecast that 2015's weather will not be as good as 2014.

AGRI-FOOD PRICES Over the past month negative pressure on Agri-Food prices on an overall basis did abate somewhat. Thusfar the bottom for the Agri-Food Price Index was in the week ended 15 August, or two weeks ago.Negative psychology that had started first in corn and soybeans moved on to other Agri-Commodities.

I

IV

V

III

II

1

2



Selling pressure on corn andsoybeans hit a maximum in the weekended 1 August, or four weeks ago.Selling pressure now mainly residesin the other non meat Agri-Commodities. Seasonal pressuresalso exist, and cannot be avoided. Forexample, hog prices are in a period ofseasonal decline that may besomewhat worse than expected due tocoming off the PED induced shortagemotivated buying.

The oscillator for the Agri-Food PriceIndex, as shown in the top graph,continues to trace out a patternsimilar to that in the Fall of last yearthat preceded a period of risingprices.

Remember, low prices create anenvironment conducive to higherprices. Low prices reduce future supply and stimulate demand, theprocess that creates higher prices. Continued on page 7.

AGRI-FOOD PRICE INDEX VS. S&P 500Estimated Annualized Returns

Time Period A-F Prices S&P 500

Latest 4 Weeks - N/A - 2.4 + 4.1

2014 Y-T-D + 4.7 +12.8

1 Year (52-Weeks) + 2.0 +22.3

2 Years (104-Weeks) - 0.3 +19.2

3 Years (156-Weeks) + 1.3 +13.4

5 Years (260-Weeks) +12.2 +14.5

7 Years (364 Weeks) +11.2 + 4.6

Since Inception +12.1 + 4.3



Schmidt Agri-Food Price Index Components Ranked by Price Trend

ComponentPrice

Current90 Week

Price HighNEW # BOLD

PriceTrend

TrendRank

Current /Previous

SinceInception% PriceChange

Butter(lb) $2.76 # $2.82 + 1 / 2 +125

Steers, feeder(cwt) $250 # $261 + 2 /2 +138

Hogs(cwt) $ 91 $130 + 3 / 3 + 43

Beef Index(cwt) $230 # $246 + 4 / 4 + 84

Broilers $1.01 $1.21 + 5 / 6 + 61

Oats $3.82 $4.97 + + 6 / 7 + 41

Eggs(12) $1.00 $1.45 + 7 / 5 + 14

Palm Oil(ton) $615 $886 - / + 8 / 8 - 3

Soybeans $12.7 $16.0 - + 9 / 11 + 79

Wheat $7.50 $9.50 - - / + 10 / 9 + 42

Sugar, World(cwt) $15.5 $19.5 - - / + 11 / 10 + 35

Cotton(lb) $0.68 $0.91 - 12 / 12 + 15

Rice (cwt) $12.6 $16.5 - 13 / 13 + 24

Canola (ton) $414 $671 - 14 / 14 + 23

Barley $ 9.1 $12.5 - - 15 / 15 +123

Corn $4.00 $7.59 - 16 / 16 + 5

Note: The pricing data and analysis on the table, Schmidt Base Food Index Components, are intended as an aide to investorsin understanding Agri-Food price trends. This information is not intended to support the trading of futures. Most individualsshould not trade commodity futures, and we do not recommend that individuals trade commodity futures for short-term profits.

Future demand for soybeans: Most of the forecasts we have seen on future soybean demand are positive. For example, in the Monsanto presentation about which we talk later the demand for soybeans is expectedto grow by 20% in the next five years. Reason for that is due to both components of soy complex, oil and especially animal feed demand.



Continued from page 5. Since soybeans are one of our topicsthis month, let us stop and review theposition of soybeans in the table onthe previous page. Soybeans movedup from #11 to #9. That occurredbecause the price trend is improving.The slope of the price trend isnegative, but becoming less so whichmoves it up in the ranking. Noticealso oats which also improved inranking. The negative action in thegrains is slowly turning less so.While corn remains firmly in lastplace, note that the price trend for itis also becoming less negative. The“storm” is still in the pits, but it isslowly passing off.

In the top chart the line of red circlesis the percentage of the Agri-Commodities with positive pricetrends. That percentage deterioratedsignificantly in August as pessimismmoved from corn and soybeans to theothers. That ratio has historicallybottomed in the range of 30-40%, andis currently approaching that level.

Red line in second chart is the ratioof a price index constructed using themedian price change to Agri-FoodPrice Index, a mean-based index.When rising, the “internals”, to usethe words of a technician, areimproving. While clearly not amarket timing tool, a rising ratiosuggests that the market’s “internals”are improving. As highlighted by thearrows, a rising ratio precedes a movehigher in Agri-Commodity prices.

Bottom chart portrays the ranking ofthe Agri-Commodities by percentage



price change over the past four weeks.Four of the top six were grains, corn,barley, soybean, and oats. Thatimprovement has been developing allmonth.

Earlier we noted that the pessimismhad “moved” from being corn andsoybean centered to o thercommodities. Palm oil, near bottom of chart, is an example of this“movement”. Palm oil price has beenpushed down because soybean prices“were going down”, making it acheaper vegetable oil relative to palmoil. But, we have just observed thatsoybean prices have an improvingtrend. The pessimism has simply“moved” from soybeans to palm oil.

Top chart is of soybean prices. Noticethat prices have been moving laterallyfor some weeks and that the stochastichas turned up. A similar developmentoccurred in 2013 before prices turnedup. Norther Hemisphere soybeanharvest will begin in southern part ofthat region in next couple of weeks.We know that harvest will be big. But,from that harvest till Fall of 2015demand becomes the key variable.

Second chart on wheat has a similarpattern. At present time no difficultiesare expected with wheat exports fromUkraine. Some foreign buyers mayhowever buy ahead on fears situationwill worsen.

Hog prices, bottom chart, areexperiencing both a normal seasonalsell off and a correction fromexcessively high prices. Due to PED ,buyers apparently over bid pork,sending prices too high.



Little but the weather can now influence the North American corn harvest which is about to begin. Generalconsensus is it will be a big harvest, if not a record one. That reality is more than priced into the market.Our interest is shifting to what happens next year. How much corn acreage will be planted in the Springof 2015 in the U.S., or crop year 2016? How much corn will that acreage produce? In the beginning of thisletter we learned two things. One was that using current prices the planting of corn in the U.S. is, onaverage, profitable. The set of bars in the first chart for Contribute Profit was positive. We also discoveredthat while growing corn might be profitable, a corn farm is not profitable. That was last set of bars in thatchart. How will farmers react? Our working assumptions that went into top chart is that a modest reductionin acreage will occur and that the weather will be less great, more normal, next year. We are projecting thatthe global corn harvest in crop year 2016, U.S. harvest Fall 2015, will decline by as much as 7-8%.



Corn Calendar Events That Could Influence Price of Corn

Comments are in italics.

12 August USDA: WASDE - Neutral Report

11 September USDA: WASDE This report will be first with updatedU.S. acreage numbers. A much watched report as U.S.

corn harvest now beginning in southern portion of country.

September Corn planting begins southern Brazil, & moves North.Acreage reports out of Brazil will be first indication ofresponse of farmers there to low prices for corn.

10 October USDA: WASDE

October Soybean planting in southern Brazil, & moves North.

November Soybean planting peak, & corn begins pollinating.

10 November USDA: WASDE

February 2015 Brazilian corn harvest begins.

March 2015 Brazilian soybean harvest begins.

30 March 2015 USDA: U.S. planting intentions report on corn & soybeans

AGRI-EQUITIESLast month the U.S. equity market screamed upward. Depending on which index one uses, that stockmarket was up 4-5%, or roughly 50-60% at an annualized rate. For a stock market in the 6 year of a bullth

market, those results are beyond belief. That development is both abnormal and normal. Abnormal because



returns do not accelerate in thenormal course of a bull market. Whenone throws a ball into the air themomentum falls till the ball drops.The momentum of the U.S. stockmarket accelerated, which isunnatural. We can also describe thismarket action as “normal”. A longtime friend always reminded that allthe sheep have to be in the pen beforethe shearing can begin. The sheep arejust about all in the pen.

As shown in the top chart, 53% of theAgri-Equities performed better thanthe S&P 500 during August. Thoseresults are good given the extremestrength shown by the Techno/Junktrading on the NASDAQ.

Second chart is of the performancefor each of the Agri-Equities duringthe month of August. JBS, as wehave mentioned several times thispast month, was the clear winner. Upmore than 20% and hitting a new 52-week high, investors were drawn bythe company’s dominance in theglobal animal protein market. CALMwas up because the market was up.For some reason that stock runs whenthe market is strong.

ZTS had a strong month as we havenoted before. Street tends to like drug stocks, and suspect that was the motivation for the stock’s move.It is also in the S&P 500 and pays a dividend.

ADM and BG continued to gain investor favor during the month. That seems to be a continuation of thereappraisal of ADM and BG better than expected earnings report.

AGU gained some late in the month on the announcement of an agreement to expand the relationshipbetween Loveland Products, an AGU company, with Actagro. More on this later.

Continued on page 13.



Tier One Agri-Equities

Name / % ChangeSince Added / End of

U.S. Symbol / Website# = 52 Week High in Month

US$ Price /Mo. Change

ValueEstimate

PotentialTo Value

Priority1

Wilmar International-39% / Jul 2010

US: WLMIY ADR 10 x2

www.wilmar-international.comS$ = Singapore dollars

US$ 2.53- 3%

S$ 3.16

US$ 5.21

S$ 6.51

+106% C

AGCO Corp.+13% / May 2007

AGC0www.agcocorp.com

$48.8+ 0%

$66.4 +36% C

Darling Ingredients+197% / Mar 2007

DARwww.darlingii.com

$18.7-10%

$20.7 +11% F

Deere+55% / Mar 2007

DEwww.deere.com

$84.1- 1%

$89.5 + 6% C

Syngenta+39% / Apr 2008

SYTwww.syngenta.com

$72.1+ 2%

$74.8 + 4% C

Agrium Inc.+47% /Jan 2008

AGUwww.agrium.com

$94.6+ 4%

$ 96.0 + 1% C

Bunge Ltd.+ 3% / Mar 2007

# BG www.bunge.com

$84.7+ 7%

$83.2 - 2% C

Zoetis+15% / Jul 2013

ZTSwww.zoetis.com

$35.4+ 8%

$33.4 - 6% C

Archer-Daniels +36% / Mar 2007

# ADM www.admworld.com

$49.9+ 5%

$42.5 -16% C

Kubota+50% / Apr 2007

KUBTYwww.kubota.com

$71.6+ 8%

$60.3 -16% F

Monsanto+110% / Mar 2007

MONwww.monsanto.com

$115.7+ 2%

$82.4 -29% C

Cal-Maine Foods+488% / Mar 2007

# CALMwww.calmainefoods.com

$79.1+11%

$49.5 -37% F

+84% Average for the List + 4% + 7%

See end of newsletter for discussion of Priority codes.1

WLMIY is the U.S. symbol for the ADR, 1 ADR:10 Shares. 2



Continued from page 11.

Negative impact on farm income oflow grain prices will exhaust itself bymid to late next year. Farm incomewill fall in 2014, but not by much. Asignificant portion of the U.S. cropsto be soon harvest had already beensold at average prices above currentones. Farm income will have a farmore difficult time until corn pricesare back above US$5 per bushel.2015 farm income will take a farbigger hit, but begin recovering in thesecond half of that year.

Northern Hemisphere’s weather“coin” was flipped, and it came upheads two years in a row. Whileeach flip of a coin is an independent event, the same is not true forweather over time. Also, we haveobserved over the years that if it isavailable the world will eat it.Demand will now begin to emergeas the more important factor, onethe traders really do not appreciatefully or adequately.

AGRI-EQUITIES - Estimated Returns in %

Agri-Equities S&P 500 NASDAQ

Month N/A + 3.0 + 3.8 + 4.8

1 Year + 7.8 +22.7 +27.6

2 Years +15.8 +19.3

3 Years +10.5 +18.0

5 Years + 6.7 +14.3

7 Years + 8.1 + 4.5

Since Inception + 9.0 + 4.7



Tier One Agri-Equities:In August the Agri-Equities, on average, returned 3%. While less than the outsized returns in the U.S.equity market, an almost 40% annualized gain is respectable. While some have been influenced by grainprices, AGCO and DE for example, the stocks have been largely influenced by the individualcharacteristics of the companies. One example of that has been ADM which has successfully convincedinvestors that it is more than just a Midwestern U.S. commodity grain company. Recent announcement byAGU may be causing a similar transformation of opinion. AGU has been long visualized by some as afertilizer stock. AGU’s large retail operation has moderated that view somewhat. The announcement of AGU expanding its relationship with Actagro, www.actagro.com, seems to have attracted investorattention.

Actagro is a form of biotechnologycompany that focuses on the scienceof plant nutrients and how to use thatscience to more efficiently delivernutrients to the plant. While clearlymore to it than that description,awareness of the direction of AGUaway from wholesale fertilizers waswell received. We do expect AGU tocontinue moving away fromwholesale fertilizer to the valueadded sector of products such asthose of Actagro and consultingservices on fertilizers, pesticides, andseeds to the farmer.


http://www.actagro.com,


TIER ONE AGRI-EQUITIESEstimated Annualized Returns in %

Agri-Equities - I S&P 500 NASDAQ

Latest Month, N/A + 3.0 + 3.8 + 4.8

1 Year +10.0 +22.7 +27.6

2 Years +16.2 +19.3

3 Years +12.0 +18.0

4 Years +15.7 +17.5

5 Years +14.8 +14.3

7 Years +10.9 + 4.5

Since Inception +12.4 + 4.7

MONSANTO(MON) is perceived by most investors as a seed company and by the rest as an Agri-Chemical company. As with most simplifications, the complexity of the matter is not given fullappreciation. MON should be perceived as a science-based biotechnology company with goal of increasingthe crop yields of farmers. That view would also apply to SYT. Further, we do not share the view that aninvestor should own MON rather than SYT. We view them as a package of Agri-Science companies, andboth should be owned.

MON has posted on their web site a company presentation from 20 August, To MON Presentation Ourinterest is in page seven of that presentation. Per MON, in the last five years growth in corn and soybeanproduction was due to a 60% and 85% expansion in acres. In the next five years expansion of acres willslow and growth of production willbe 95% and 85% due to yieldenhancement. In short, “science” willbecome more important to addingrevenues. With this view both MONand SYT will gain.

Transition from acreage growth torevenue growth through better seedsand pesticides has been hamperingrevenues growth, and certainly will inthe next year. MON is a stock toown, but not buy at this price. SYT isbetter value. Web site iswww.monsanto.com


http://www.monsanto.com/investors/pages/presentations.aspx

http://www.monsanto.com


TIER TWO AGRI-EQUITIESJBS had a stellar month. Part of that gain may be due to greater recognition of the high price of animalproteins, particularly beef. Should beef prices weaken next year, some investors may move out of the stock.However, with animal protein likely to be in shortage over the long-term on global basis, investors shouldprobably ride any ups and downs the stocks might have. Stock is not yet over priced.

Tier Two Agri-Food CompaniesThese companies may have higher investment risk. # New 52 week high during the month.

Name / % ChangeSince Added / End of

SymbolIndustry / Website

US$ Price% Change

Value PotentialTo Value

Priority

Sky People Fruit Juice-72% / Nov 2008

SPU / Fruit Juices in Chinawww.skypeoplefruitfjuice.com

$1.15-15%

$ 2.8 +142% E

JBS S.A.+46% / Aug 2013

(1) JBSAY / Animal Proteinwww.jbs.com.br

# $9.03+22%

$8.5 + 6% C

Phibro Animal Health+ 8% / Apr 2014

PAHC / Animal healthwww.pahc.com

$19.1+ 1%

$18.7 - 2% E

- 6% Average For Active List + 3% 49%

FMC CorporationAfter spin off

FMC / Animal health, & nutritionwww.fmc.com

UnderReview

Awaitingspin off

Pilgrim’s Pride+428% / Sep 2011

(2) PPC / U.S. chicken producerwww.pilgrimspride.com

$29.9+ 7%

$9.8 -67% Do NotBuy

(1) JBSAY is U.S. ADR for JBS. Primary market in Brazil. Each ADR represents 2 shares of JBS. All values in U.S.dollars for ADR. JBS owns most of PPC.(2) PPC rated Do Not Buy in August 2013 based on price appreciation.



Chart to right is our Animal HealthyEquities Index versus the S&P500. 3

After correcting the excessiveperformance in June during themonth of July, the stocks as a groupgained nicely during August. Perhapsthe most interesting aspect of thegroup is that it is still not widelyknown. After FMC’s split is effectiveand three stocks are trading in theU.S. the group may gain morefollowing. Fourth stock in this group,but not part of the index, is ChinaAnimal Health which was up 15% inAugust.

AGRI-FUNDAMENTALS Chart below is the growth rate of industry sales measured on a six-month basis. Revenue growth continuesto be largely based on volume growth rather than being price driven. Some softness may develop in thenext year given the low prices for corn. That situation should begin to improve in the second quarter of2015, which is really not that far off given that the calendar is in September.

Animal Health Equities Index is composed of equal weights of ZTS, PAHC, & FMC.3



PRICE-TO-SALES PER SHARE RATIOS FOR COMPANIES Table which follows focuses on ratio of price-to-sales per share. This ratio has been shown to be extremelyuseful. Lower the ratio, more under valued company is likely to be. Companies are ranked by the growthrate of sales per share. Growth rate is the six-month change in trailing twelve month sales. Current growthrate is followed by previous value. In last column companies are ranked on basis of sales per share growth,current month rank followed by rank for previous month.

Price-To-Sales Per Share Ratio Analysis of Companies

CompanyBold =

Rank Up US $ Price $ Sales Per

Share*

Price-to-SalesPer Share Ratio

Current/High/Low

6 Mo. GrowthRate of SalesPer Share*

Rank

JBSAY $9.03 $32.3 28% / 33% / 16% +34% / +11% 1 / 2

CALM $84.1 $59.6 133% / 137% / 65% + 7% /+12% 1 / 1

KUBTY $71.6 $58.9 122% / 156% / 74% + 5% / + 7% 3 / 3

ZTS $35.4 $ 9.2 385% / 405% / 306% + 4% / + 8% 4 / 4

SYT $72.1 $32.0 225% / 286% / 197% + 2% / + 4% 5 / 5

MON $115.7 $24.8 467% / 520% / 252% + 2% / + 5% 6 / 6

DAR $19.3 $16.8 114% / 231% /109% +163% / +64% 7 / 8

AGU $94.6 $112.2 84% / 104% / 63% + 2% / - 2% 8 / 13

WILMAR $2.53 $6.9 37% / 69% / 34% + 1% / + 0% 9 / 9

PAHC $19.1 $16.8 114% / 141% / 95% + 0% 10 /14

PPC $29.9 $32.4 92% / 99% / 13% - 0% / - 3% 11 / 10

BG $84.7 $395.7 21% / 22% / 14% - 0% / - 4% 12 / 11

SPU $1.15 $2.9 39% / 98% / 38% - 2% / -30% 13 / 16

ADM $49.9 $133.9 37% / 38% / 18% - 5% / - 2% 14 / 12

AGCO $48.8 $109.6 45% / 59% / 35% - 7% / - 1% 15 / 15

DE $84.1 $ 99.9 84% / 99% / 70% - 8% / + 0% 16 / 7

*Percentage change of current twelve month sales per share verus that value six months ago. Using constantnumber of shares to adjust for distortions of repurchases, issuance, and other changes.



DIVIDEND PAYING AGRI-EQUITIES:

Table below provides a listing of Agri-Food stocks which pay dividends. Attempting to track dividends,while it may not sound like it, is no easy task. We expect that these numbers will often be wrong.

AGRI-EQUITIES - DIVIDEND PAYING

Symbol Price DividendAnnualized

DividendYield

ADM $49.9 $0.96 1.9%

AGCO $48.8 $0.44 0.9%

AGU $94.6 ~$3.00 3.2%

BG $84.7 $1.36 1.6%

CALM $79.1 Pays dividend based on earnings.

DE $84.1 $2.40 2.9%

GEA(Tech list) €34.2 €0.60 1.8%

KUBTY $71.6 ~$0.97 1.4%

MON $115.7 $1.72 1.5%

PAHC $19.1 $0.40 2.1%

SYT $72.1 ~$2.27 3.1%

Wilmar $2.52 ~$0.05 1.9%

ZTS $35.4 $0.29 0.8%

AGRI-LANDWe have been so focused on corn and other prices that Agri-Land has not received much attention. But wewill hopefully return to this topic in the months ahead.



AFVV AGRI-LAND EQUITY INDEXFor many investors Agri-Land may not be a practical approach. For that reason we started some time agoexploring indirect investments in Agri-Land. Shown below is of the AFVV Agri-Land Equity Index basedon the companies in the table which follows. We have not yet recommended investment in any of thesecompanies. Information presented is to help investors start to learn about these companies.

Chart to right is of our Agri-LandEquity Index. Index has now bouncedtwice off the lows, and recently madea high above the previous high.However, we do not see meaningfulopportunities in the stocks at this time.

Agri-Land Equities

Name / WebsiteExchange /

Symbol# = 52 Week High

in Month


ValueEstimate

PotentialTo Value

Footnote

Adecoagro S.A. (1)http://www.adecoagro.com/index.php

?idioma=ingles

US: AGRO $ 9.45- 6%

$8.44 -11% (2)

BrasilAgro-Companhia Brasileira. . .http://www.brasil-agro.com

US: LNDADR: 1:1

$ 4.30- 3%

$ 2.4 -44%(3)

(4)

Australian Agricultural Companyhttp://www.aaco.com.au

ASX: AAC AUS $1.25+ 0%

AUS$1.90(5)

+53% (5)

Farmland Partnerswww.farmlandpartners.com

US: FPI $11.59- 2%

n/a REIT

Footnotes:1: 21% of company held by Soros Fund Management. 2. AGRO, per the company, “currently one of the leading companies in the production of food and renewable energy in South America. Present in Argentina, Brazil and Uruguay, our main activities include the production of grains, rice,oilseed, dairy products, sugar, ethanol, coffee and cotton.”3. Valuation highly tentative.4. LND operates in Brazil, and per the company “Acquisition, development and exploitation of agricultural propertieswith high potential of appreciation and Diversification and active management of our portfolio.”5. For a variety of reasons, we are using AAC’s estimate of Net Tangible Assets per share, in Australian dollars.


http://www.adecoagro.com/index.php?idioma=ingles

http://www.adecoagro.com/index.php?idioma=ingles

http://www.brasil-agro.com

http://www.aaco.com.au

http://www.farmlandpartners.com


AGRI-TECHNOLOGY Agri-Technology companies are involved in bringing new technologies to the industry. This research effortis still well in infancy, but we expect over the years to find some companies of interest. Chart and table thatfollow track the Agri-Technology equities.

Imagine a robot milking cows. That idea kind of caught our attention when we came across “GEA BreaksGround for 72-stall Rotary Robot” by J. Dickrell, Dairy Today Editor, agweb.com, 20 August. So, we readfurther and that led us to GEA Group, a German engineering and technology company involved in thefood industry. GEA is being added to Agri-Technology Equities. Link to article is: Robot Dairy

Agri-Technology Equities

Name / WebsiteDate Added / % Change

Exchange /Symbol

# = 52 Week High in Month


ValueEstimate

PotentialTo Value

Footnote

Where Food Comes From, Inc.www.imiglobal.comOct 2012 / + 96%

US: WFCF $2.35- 5%

$1.67 -29% (1)

AquaBounty Technologieswww.aquabounty.com

Jan 2013 / + 53%

London: ABTX £18.00 (3)+ 6%

n/a n/a (2)

GEA Groupwww.gea.comAugust 2004

Xetra/Frankfurt:G1A

US: GEAGY

€34.2 n/a n/a (4)

Footnotes:1: WFCF provides verification services for livestock, food industry, and agriculture.2. ABTX valuation cannot be done at this time due to early stage in company’s development.3. This link should take you LSE page for ABTX: ABTX Page4. A U.S. ADR trades in dollars, but liquidity may be poor.: GEAGY


http://www.agweb.com/article/gea_breaks_ground_for_72-stall_rotary_robot_NAA_Jim_Dickrell/

http://www.imiglobal.com

http://www.aquabounty.com

http://www.gea.com

http://www.londonstockexchange.com/exchange/prices-and-markets/stocks/summary/company-summary.html?fourWayKey=USU0387J1089JEGBXAIMI


GEA Group revenues are above €4 billion. The four divisions of the company are pictured in the above diagram from the company. Largest group is Process Engineering which produces speciality systems fordairies, breweries, and pharmaceutical operations. Note that in each of the groups the percentage of salesthat is food related is indicated, and ranges from 62% for refrigeration technology to 100% for farmtechnology. Aside from the unique focus of the company’s engineering technologies, the geographicaldiversity of the company is appealing. Chart below shows the global reach of the company. Note that AsiaPacific, is roughly 25% of the company. On the left of the chart, two largest customer nations served arethe U.S. and China. We do intend to talk more on this company as it is fairly complex for its size.Continues on next page.



GEA seems to trade primarily on the Frankfurt market which is reported through Xetra. An ADR alsotrades in the U.S. under the symbol GEAGY. This company is worth taking some time to visit thecompany’s web site, www.gea.com, and viewing some of the presentation material.

CHINESE AGRI-EQUITIESNote that information on these companies is provided as a service. No, repeat no, investment opinion isexpressed on these companies by their inclusion in this report. All listings are in Hong Kong. Thatexchange can be accessed through this link: HKEX Requirement for inclusion on the list are that they tradein Hong Kong, seem to be associated with Agri-Food in some way, and claim to have made a profit. Issuesmay be deleted at any time with or without explanation.

Hong Kong Agri-Equities have beenextremely strong over the past year.As the chart top of the next pageportrays, the Hong Kong Agri-Equities have returned, in U.S.dollars, nearly twice that of S&P 500.

What about the next year? Thismonth the “polarity” of the globalinvestment world will begin a shift.Alibaba, China’s largest ecommercecompany, is doing a public offeringin the West. Valuation of thecompany after the offering is forecastto be ~$200 billion, making it one ofthe largest companies by marketcapitalization. Jack Ma, leader of thecompany, will become China’s richest individual. Stock symbol will be ALBCF, we think.


http://www.gea.com,

http://m.hkex.com.hk/eng/index.htm


Alibaba, after the offering, willappear in most portfolios. Except forthose that are prohibited from owningthe stock like an oil stock ETF, it willbe in “every” managed portfolio.Managers will not be able to avoidholding the largest Chinesetechnology company. Thisdevelopment will begin the processof shifting center of investment worldfrom the West to the East.

Hong Kong Agri-Equities

Name Hong Kong Code

Web Site Business HK $Price

PossibleHK$ Value

China Agri-Industries

HK#: 606

http://www.chinaagri.com/en/

Grain processing& trading

3.17- 7%

n/a

China AnimalHealthcare1

HK#: 940

http://chinanimalhealthcare.com/eng/index.asp

Drugs relating toanimal healthcare.

5.89+15%

3.94

China Modern Dairy

HK#: 1117

http://www.moderndairyir.com/en/aboutus.htm

Dairy products inChina.

3.80+ 5%

3.00

First Tractor

HK#: 38

http://www.first-tractor.com.cn/

Agriculturetractors

5.32- 9%

5.70

Great China

HK#: 141

http://www.greatchinaholdingsltd.com.hk/index_en.asp

Trading of animalfeed

1.85+10%

n/a

Sinofert

HK#: 297

http://www.sinofert.com/en/ Fertilizers 1.21+11%

n/a

WH Group

HK#: 288

http://www.wh-group.com World’s largestpork company

(Smithfield Foods)

6.37 6.42

AVERAGE + 4%

1. 20.4% owned by Eli Lilly(US: LLY)












http://www.sinofert.com/en/

http://www.wh-group.com


WH Group completed an IPO last month and is now trading on the Hong Kong exchange. In the abovechart, page 96 of the prospectus, is listed the largest companies involved in pork on a global basis basedon their market share of pork. Going with the industry leader is normally the wisest place to start. We donote that Tyson will gain market share with the acquisition of Hormel, moving to the top in packagedmeats.

Bottom chart, page 97 of prospectus, looks at past and project pork production and consumption is China. In the early period in the chart, 2008-13, consumption generally grew in line with production in China. Theprojection, 2013-2018, is for consumption to grow in line with or slightly faster than production. Thisforecasts hints at potential for pork imports. To generate the projected gains in pork production will requireextremely high levels of grain imports.



Chinese government for some times has had a policy of reducing the number of small food producers, andshifting the nation to producers of larger size. Reason for this is to improve the quality of foods produced.Disease is much more likely with small producers than large producers. As can be observed in top chart,page 99 of prospectus, producers of more than 500 head now represented more than 14% of porkproduction. Larger producers can take advantage of economies of scale and with the number of smallproducer shrinking should experience an improvement in margins.

In the bottom chart is plotted the number of licensed slaughterhouses in China, page 100 of prospectus.Here is a strong example of government policy. A dramatic drop in the number of slaughterhouses has beenengineered by the government. Primary intent of this policy is to improve quality of food. Anotherconsequence is that remaining slaughterhouses have higher profits.



Is the Arctic shrinking? Depends on when one measures it. See: Arctic IceIn that article is a chart on the size of the Arctic ice. Part of the chart may be covered by an insert forsharing. Just click on it and move it out of the way.

OTHER THOUGHTSNow 3206 days since a hurricane, Cat 3 or better, has hit the U.S. That works out to about 8.8 years, anddoes suggest earlier forecasts of higher storm activity due to climate change were somewhat less thanaccurate. Next eight weeks is the high risk period for hurricanes so we have a lot of fingers crossed.

Eat well, and grow prosperous,

NedNed W. Schmidt,CFA

[email protected]

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References:

Grassini, P. et al (September, 2013) Distinguishing between yield advances and yield plateaus in historicalcrop production trends. Nature Communications.

Kaplan, R.D.(2012). The Revenge of Geography: What the Map Tells Us About Coming Conflicts and theBattle Against Fate.

Malthus, T. (1798). An Essay on the Principle of Population. Amazon Kindle.


http://www.dailymail.co.uk/news/article-2738653/Stunning-satellite-images-summer-ice-cap-thicker-covers-1-7million-square-kilometres-MORE-2-years-ago-despite-Al-Gore-s-prediction-ICE-FREE-now.html

mailto:[email protected]


MANAGING THE AGRI-FOOD PORTFOLIO: List of stocks is divided into three groups. Coreis comprised of those stocks that, as the name implies, should be the core holdings for Agri-Foodexposure. This group will tend to be larger and more multinational companies, and are noted in thetable with C. See column titled Priority. Second group we call Extend, labeled E in the tables. Thisgroup includes those stocks with the best exposure to the Agri-Food trends being created by Chinaand India. They will be smaller stocks, and have high business risk. We do expect the long-termresults on these to be better than average, while their business risk and stock price volatility to besignificantly higher than average stock. Final are those that round out the portfolio, labeled with F.Their businesses help to complete the circle. While likely to benefit from global Agri-Food trends,their activities may be more tangential.

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