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Attractive Opportunities in Agriculture: Steve Yuzpe
THURSDAY, JUNE 27, 2013 Henry Bonner Attractive Opportunities in Agriculture: Steve Yuzpe Steve Yuzpe joined Sprott Resource Corp. in 2009 as Chief Financial Officer. Sprott Resource Corp., a publically-listed private equity firm, manages a portfolio of investments in the natural resources sector, including a large allocation to agriculture. “Food production is a very interesting area to be in right now, because the case for higher food prices around the world is very compelling. The need for food security, the effects of rising populations, water scarcity and climate change, and the need for inflation-protected assets all make the set-up for agriculture very compelling right now. There are opportunities in the sector that should offer strong risk-adjusted returns.” Despite its attractiveness, the ability to enter the agricultural sector is quite restricted to individual and retail investors, says Steve. On a relative basis, very few investment opportunities are publicly available. Those that can enter the space through private investments – such as large investment funds – have a definite advantage by having access to a significantly larger investment universe. “In addition to the typical long-term supply and demand trends, there are three agro-economic factors that underlie the bull case for agriculture. Firstly, the sector should provide an inflation-protected asset for investors concerned with currency devaluation occurring now. Inflation drives up the costs of all the raw materials involved in food production, processing, storage, transportation, etc. For example, food and energy are over 80% correlated. So if you believe that the prices of these commodities in general and energy specifically could rise, agriculture could provide you with an additional means of protecting against this risk.” “Another major factor is global climate change. Whether or not the change is man-made or a long-term natural cycle is irrelevant. Over the past two decades, average temperatures are rising and weather conditions have become increasingly volatile, which creates a lot of uncertainty around the productivity of existing farmland. This uncertainty can have a huge impact on crop prices, as evidenced by the devastating droughts in the U.S., Russia, and India in 2012. There seems to have been a dramatic weather event in major crop producing areas in each of the last five years.” Steve believes governments will continue to implement policies to secure inexpensive food for domestic populations in response to the political upheaval that high food prices can cause. “In 2010, the Russian government imposed export restrictions on wheat. Argentina did the same thing in late 2012 and early 2013, to secure the supply for their constituency.” Meanwhile, food supply is also threatened by the reduction of existing available farmland through pollution, urbanization, soil degradation, and water scarcity, says Steve. Putting new resources into production could be challenging and costly. “There is available arable land that isn’t producing in Brazil, Russia and Kazakhstan. Most of the land is either of marginal utility, or is located in remote regions, adding transportation to the cost of bringing production to market. In addition, it takes years to convert the land into arable farmland, with heavy input costs for pesticides, fertilizers, etc. So these types of projects aren’t about to bring down the price of food. In fact, they would only be economical in a global environment of food shortages, when it’s better to have high-priced food than no food.” “In agriculture, you have to take a long-term view. We believe that the global macro-economic picture is on our side in this area. Global populations will continue to grow; the amount of cultivatable farmland per person is being squeezed down. We believe that this create opportunities for our investment portfolio over the long term.” Steve Yuzpe has 15 years of experience with financial administration management in public and private corporations. Sprott Resource Corp .is a Canadian-based company, the primary purpose of which is to invest and operate natural resource projects. Through acquisitions, joint ventures and other investments,Sprott Resource Corp.seeks to provide its shareholders with exposure to the natural resource sector for the purposes of capital appreciation and real wealth preservation. Continue reading
Farmland Values Continue Rising
Published: Friday, June 28, 2013 On the whole, “good” farmland values kept rising in the Seventh Federal Reserve District during the first quarter of 2013, but signs of moderation in farmland value gains emerged. Agricultural land values appreciated 4 percent in the first quarter of 2013 relative to the fourth quarter of 2012, based on the survey responses of 219 district agricultural bankers. This quarterly increase was smaller than that of the previous survey. That said, the year-over-year increase in agricultural land values was 15 percent in the first quarter of 2013, nearly matching the annual gain of 2012. Both the district’s quarterly and year-over-year increases in farmland values masked the weaker results of some areas, such as Wisconsin. Demand to purchase agricultural land increased in the three- to six-month period ending with March 2013 compared with the same period a year ago. Similarly, the number of farms sold, the amount of acreage sold, and the amount of farmland for sale rose during the winter and early spring of 2013 compared with a year ago. Additionally, farmland cash rental rates in the district were 11 percent higher in 2013 compared with 2012. With regard to agricultural land values during the second quarter of 2013, over three-quarters of the responding bankers expected them to be stable. Credit conditions continued to improve for agricultural producers. Both the index of availability of funds to lend and the index of repayment rates for non-real-estate farm loans moved up, although they did not reach their peaks. In addition, fewer renewals and extensions of these loans indicated improvement in credit conditions. Yet, the index of demand for non-real-estate loans in the first quarter of 2013 fell to its lowest level since 1986. At 63.7 percent, the average loan-to-deposit ratio had not been lower since 1994. Interest rates on farm loans moved down further to new lows for the survey. Farmland Values District agricultural land values rose 4 percent in the first quarter of 2013 relative to the fourth quarter of 2012, easing down from the quarterly increase of last year’s final quarter. However, the year-over-year increase in district farmland values was 15 percent in the first quarter of 2013, almost matching the annual gain of 2012. Furthermore, the district’s quarterly and year-over-year gains in agricultural land values masked the weaker results of some areas (see table). Most notable was a 3 percent drop in Wisconsin’s farmland values in the first quarter of 2013 from a year ago. That said, the year-over-year and quarterly gains in agricultural land values for Michigan were higher than the strong gains of the previous quarter. For Illinois and Iowa, the increases in farmland values on a year-over-year basis were close to those of the previous quarter, although these district states’ quarterly increases were softer than those of the last quarter. There was higher demand to purchase farmland in the three- to six-month period ending with March 2013 compared with the same period a year ago; 59 percent of the survey respondents observed higher demand to purchase farmland, while only 1 percent observed lower demand. The supply of farmland was higher too: There was an increase in the amount of farmland for sale over the winter and early spring relative to a year ago, as 37 percent of the responding bankers reported more farmland was up for sale in their areas and 28 percent reported less. Similarly, the number of farms and amounts of acreage sold increased over the winter and early spring relative to a year ago. A little over one-third of survey participants reported that farmers increased their share of farmland acres purchased (relative to investors) in the three- to six-month period ending in March 2013 versus the same period a year earlier; 3 percent said farmers decreased their share; and 62 percent saw no change. District cash rental rates for agricultural land in 2013 were up 11 percent from 2012 (this annual increase was smaller than those of the past two years). Over the same period, farmland cash rental rates were up 9 percent in Illinois, 11 percent in Indiana, 13 percent in Iowa, 2 percent in Michigan and 12 percent in Wisconsin. District cash rental rates increased almost 10 percent from 2012 when adjusted for inflation using the Personal Consumption Expenditures Price Index; this result was the fourth-largest increase in farmland cash rental rates in the history of the survey. The string of strong advances in farmland cash rental rates propelled their inflation-adjusted index past its previous peak. Similarly, the index of agricultural land values has established new records every year since 2011. Historically, changes in cash rental rates have tended to trail those in farmland values, so not surprisingly, the equity derived from the land outpaced the income from cash rents in 2013. Rising cash rental rates and farmland values reflected higher crop prices. Prices in the first quarter of 2013 averaged $7.06 per bushel for corn and $14.47 per bushel for soybeans, according to the U.S. Department of Agriculture. In the first quarter of 2013, corn prices and soybean prices increased 2.5 percent and 1.4 percent, respectively, from the fourth quarter of 2012; corn prices grew 13 percent and soybean prices grew 17 percent compared with a year ago, as tight stocks and uncertainty about the weather boosted prices. Moreover, at the end of the first quarter of 2013, $16.1 billion had been paid out for insured 2012 agricultural losses across the U.S., of which $6.66 billion went to producers in the five district states (41 percent of the U.S. total). These factors bolstered farmland values and cash rents while enhancing agricultural credit conditions in the first quarter of 2013. Credit Conditions Agricultural credit conditions improved in the first quarter of 2013 compared with the first quarter of 2012. At 161, the index of funds availability nearly matched last year’s record, with 61 percent of the survey respondents reporting their banks had more funds available to lend and under 1 percent reporting their banks had less. The index of repayment rates for non-real-estate farm loans moved up to 143 for the first quarter of 2013—its highest value since setting a new high a year ago; 47 percent of the responding bankers reported higher rates of repayment and 4 percent reported lower rates. Thirty-five percent of the survey respondents observed fewer loan renewals and extensions over the January through March period of 2013 compared with the same period last year, while 5 percent observed more of them. Continue reading
Obama Delivers Renewed Renewable Energy Support For The US
27 June 2013 One of the most powerful people on Earth, US President Barack Obama, gave a passionate address on climate change on 25 June during a visit to Georgetown University in Washington DC. Obama wants to cut carbon pollution and reduce global warming and told an audience of students and visitors: ‘I refuse to condemn your generation, and future generations, to a planet that is beyond fixing.’ Among broad measures outlined, Obama wants to see a reduction in greenhouse gas (GHG) emissions and the promotion of renewable energy while aiming to hit a 17% cut in carbon emissions recorded in 2005 by the end of this decade. He also took the brave decision to bypass a Congress stuck in stalemate to issue an executive memo to the Environmental protection Agency (EPA)calling for new rules for power plants to limit GHG emissions. The transportation sector has seen calls for further increased fuel economy standards for heavy duty trucks, with the plan also stating ‘biofuels have an important role to play in increasing our energy security, fostering rural economic development and reducing GHG emissions from this sector’. The action plan also reaffirms the Obama administration’s support of the Renewable Fuel Standard (RFS) and points to investment by the government into research and development for next-generation biofuels. The Advanced Ethanol Council (AEC) says the advanced ethanol industry stands behind the Obama administration in its effort to combat climate change. ‘The President is right to identify the renewable fuel standard and existing federal regulations as critical to the effort to reduce greenhouse gas emissions from the energy sector,’ states AEC executive director Brooke Coleman. ‘Pound for pound, advanced ethanol is the most carbon reductive alternative to gasoline in the world and the RFS is driving the commercial deployment of our industry.’ Furthermore, the action plan informs that the US has more than doubled electrical generation from renewable sources during Obama’s first term, and he hopes to do the same again by 2020. To help achieve that target, the Department of the Interior has been directed to approve 10GW of new renewable capacity by 2020. The plan also notes the Department of Defense is committed to deploying 3GW of renewable energy on military installations by 2025, including biomass. ‘There are two major areas where this administration’s aid can make a big difference for the biomass industry,’ Bob Cleaves, president of the Biomass Power Association, was quoted as saying. ‘The first would be a commitment to the use of federal lands for renewable energy production and, secondly, a confirmation of biomass’ value as a renewable energy source.’ Federal agencies are also setting a new goal to reach 100MW of installed renewable capacity across the federally subsidized housing stock by 2020. – See more at: http://www.bioenergy…h.CWQL39Nk.dpuf Continue reading
