Tag Archives: australia
There’s Money to Be Made in Food and Agriculture Stocks
By Selena Maranjian July 23, 2013 Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you’d like to add some agriculture-related stocks to your portfolio but don’t have the time or expertise to hand-pick a few, the cutely tickered Market Vectors Agribusiness ETF ( NYSEMKT: MOO ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best , you can use this ETF to invest in lots of them simultaneously. The basics ETFs often sport lower expense ratios than their mutual fund cousins. The Market Vectors ETF’s expense ratio — its annual fee — is 0.54 %, and it recently yielded about 1.8%. This ETF has underperformed the world market over the past three and five years. It’s the future that matters most, though. And as with most investments, of course, we can’t expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver . Why agriculture? It’s hard to say with much certainty what many industries will look like in the future, but we can be pretty sure that our planet’s growing population will continue to require food. More than a handful of agriculture-related companies had strong performances over the past year. Archer Daniels Midland ( NYSE: ADM ) , for example, surged 37%, and is admired for its vertical integration, featuring farms, processing plants, and more. Its last quarter featured revenue slightly up, but earnings down, in part due to last year’s droughts. The company remains a solid dividend payer , though (recently yielding 2.1%), and is looking to expand in Asia via its purchase of GrainCorp , Australia’s leading agribusiness. It has also been upgraded from underweight to neutral by analysts at JPMorgan Chase , who think it will benefit from lower corn prices, but it still features low margins and doesn’t seem very undervalued right now. ADM is considering selling its cocoa business amid falling cocoa prices. Deere ( NYSE: DE ) gained 14% and yields 2.4%. The stock seems attractively valued, with its current and forward P/E ratios of 10 and 9, respectively, well below its five-year average of 15. The company is posting robust growth, though its free cash flow has been in the red. Deere expects continued equipment sales growth , particularly from Latin America, but construction and forestry sales are projected to fall this year. Deere faces competition, too, such as from Japan, and some are looking for cost-cutting from the company. Other companies didn’t do as well last year, but could see their fortunes change in the coming years. Fertilizer giant PotashCorp ( NYSE: POT ) dropped 13% and yields 3.7%. (Its dividend has been hiked 25% this year and some 700% over the past few years.) With its current and forward P/E ratios well below its five-year average, the stock seems appealingly priced . Bulls like its low-cost structure and solid profit margins. Some of its fate is tied to massive developing economies such as China, where growth has slowed, and India, where there is reportedly a potash oversupply . Potash carries a lot more debt than cash, but it’s also generating more than $1 billion in free cash flow annually. Some worry about major fertilizer Brazil’s plans to wean itself off foreign fertilizer, but others doubt that it will succeed anytime soon. Fellow fertilizer concern CF Industries ( NYSE: CF ) shed 9%, and looks attractive with its forward P/E ratio below 7. Like Potash and others, the nitrogen and phosphate specialist may be hurt if Brazil stops importing fertilizer, but that’s not likely to happen soon. Meanwhile, some peers may be hurt by changes in India, but CF is better positioned there due to its product and sales mix. It has also been benefiting from low natural gas prices, as that’s used in nitrogen fertilizer. Rising nitrogen prices have helped , too. The big picture Demand for agriculture isn’t going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies — and make investing in and profiting from it that much easier. This agriculture ETF is quite intriguing, but there are others you might find even more compelling. To learn more about a few ETFs that have great promise for delivering profits to shareholders, check out The Motley Fool’s special free report ” 3 ETFs Set to Soar .” Just click here to access it now. Longtime Fool contributor Selena Maranjian owns shares of JPMorgan Chase. The Motley Fool owns shares of CF Industries Holdings and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy . Continue reading
How To Get Sustainable Forestry Right
12 August 2013 How to get sustainable forestry right Mark Brown Professor of Forestry Operations at University of the Sunshine Coast DISCLOSURE STATEMENT Mark Brown is affiliated with Institute of Foresters Australia (IFA). We can develop a logging industry that works for everyone. Flickr/Ta Ann: Behind the veneer Australian forestry is shifting: in recent months some states have moved to log less, some more. More logging brings protests about environmental values; less, complaints about how it will affect the state’s economy. But there is a way to extract timber sustainably, and keep everyone happy. Different sides to the forestry story Tasmania is transitioning native forests to non-timber-producing reserves. Meanwhile in Queensland native forests that were to be removed from timber production may now be reopened to forestry. The harvest in Tasmania and Queensland is largely driven by a small portion of wood going to high-quality, high-value products like flooring and furniture, which can’t be made from plantation timber. The problem is that sustainable forest management, by its very nature, is a field that can be highly divisive. In 2004, Heiner Schanz from the University of Freiberg reviewed the literature on sustainable forest management and found more than 14 different definitions. He noted that controversy should almost be expected. Any one definition of sustainable forestry valued one of the five dimensions of forest management (ecological, economic, social, temporal and spatial) at the expense of others. Competing ideologies of how forests should be managed has led to conflict in Tasmania Flickr/Ta Ann: Behind the veneer In my experience, responsible forest managers and environmental groups often want the same thing. Both seek to have a healthy, productive, vibrant and diverse forest for future generations. The difference tends to emerge with economic expectations. Forest managers see the extraction of timber as a cornerstone of sustainable forest management. Environmentalists see it as the main destructive force for all the potential forest values. Learning from the past In industrialised nations like Canada and Australia, concerns about the forest damage and devastation caused by timber harvesting and extraction are largely linked to practices from decades ago. You will be hard-pressed to find a forest manager who won’t openly acknowledge these past mistakes. But management of these operations was based on the knowledge, technology and social interest of the time, all of which have since improved. We have better forestry today. I have even seen a number of examples in recent years where forest harvesting activities have been used to correct past mistakes. For example , management plans and harvest operations in Germany try to return forest biodiversity to the state it was in decades or even centuries ago. Over the past century, forest management favoured certain species in the mixed forests in Germany’s Bavaria. Over the last few decades, forest management has promoted the growth of those under-represented species. The economic value is still important but clearly being managed in balance with other forest values. Some environmental groups in Victoria have acknowledged the potential for sustainable forest management. The Wombat State Forest was over-exploited in the past, and was placed in reserve as a community forest in the early 2000s. It has become a focal point for regeneration of native forests. Community groups advocating for the protection and regeneration of that forest do not want to see it go back to traditional timber production use. But when plans to eliminate timber cutting entirely were raised, many of those groups indicated that active forestry interventions were critical to rebuilding the ecological, environmental and social values of that forest. Even with the problems caused by past forest management, many of the forested areas identified in Tasmania for protection as “high conservation value forests” have been harvested in the past. Some would argue they are in such good shape as a result of good sustainable forest management. Sweden has managed its forests for economic gain and environmental values. -bjornsphoto-/Flickr Can we get it right? I believe native forests can be sustainably managed with timber extraction. This balance can give a region a thriving forest industry while sustaining and enhancing the many other values we have for forests in our society. Examples around the world show that forests can be managed to deliver the economic values of timber for construction, fibre for pulp and paper, and increasingly as a feedstock for renewable chemicals and energy . Finland and Sweden not only have sustained and grown their traditional timber industries but are emerging as world leaders in renewable energy from biomass. And they are still considered to have some of the most pristine landscapes in the world. I have a small family property in Canada that has been owned by our family since the original settlement of the area. Over the years it has provided timber to the mill, but still been a favourite spot of the community for hunting, fishing and other recreation activities. It is well on track to provide the same for future generations. As the contrasting policies in Queensland and Tasmania play out it will present many research opportunities related to the five dimensions of sustainable forest management. I for one will watch with great interest how the regional development in the forested regions of Queensland stack up to those in Tasmania. Continue reading
Carbon Pricing Mechanism – Moving To An ETS: Next Steps
Norton Rose Fulbright LLP Elisa de Wit , Noni Shannon , Edward Campbell and Hannah Gould Australia August 6 2013 Author page » Author page » Author page » Introduction As we head towards the September Federal election, the Labor Government has sought to lock in its policy of an Australian emissions trading scheme. On 16 July 2013, the Government officially announced that it will transition from a fixed carbon price to a flexible carbon price a year earlier than planned and that Australian businesses will have “ earlier access to international permits from the European Union Emissions Trading Scheme (EU ETS) and credible Kyoto units from international markets .” Under the existing arrangements, the carbon price was set to be fixed at $25.40 per tonne for the financial year starting on 1 July 2014 and was not set to move to the flexible price period (which included a “one-way” indirect link with the EU ETS) until 1 July 2015. The Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education (DIICCSRTE) has now released the Starting Emissions Trading on 1 July 2014: Policy Summary and two draft Bills to give effect to the changes required to bring forward the move to the flexible price period and one-way indirect link with the EU ETS by one year. Submissions may be made to DIICCSRTE up to 5pm on 15 August 2013. Clean Energy Legislation Amendments The draft Clean Energy Legislation Amendment (Emissions Trading Scheme) Bill 2013 ( Amendment Bill ) sets out amendments to the Clean Energy Act 2011 (Cth) ( Clean Energy Act ), the Australian National Registry of Emissions Units Act 2011 (Cth) and the Fuel Tax Act 2006 (Cth) to start emissions trading on 1 July 2014. The key changes set out in the Amendment Bill are the following: Start of the flexible price period – The amendments provide for the start of emissions trading on 1 July 2014 by amending the definitions of ‘fixed price year’ and ‘flexible price year’ Price ceiling – The price ceiling will apply from 2014-15. Regulations to set the amount of the fixed charge (starting level of the price ceiling and the escalation rate) and the duration of the price ceiling must be made before 1 July 2014 Surrender limits on eligible international emissions units – Liable entities will be able to surrender eligible international emissions units (including European Union Allowances ( EUAs ) and eligible Kyoto units) from 1 July 2014. The 50% general limit on the use of eligible international emissions units by liable entities will be brought forward to apply from 1 July 2014. The surrender limit for access to Kyoto units will be decreased to facilitate the convergence of the price of EUAs and Australian carbon units. The sub-limit on Kyoto units will be 6.25% of an entity’s liability in 2014-15, increasing to 12.5% for liabilities that accrue from 1 July 2015 Energy Security Fund – Assistance provided to eligible emissions-intensive coal-fired generators under the Energy Security Fund will be revised. The allocation of free carbon units to eligible generators in the 2016-17 financial year will not proceed and the allocation of free units to eligible generators in the 2015-16 year has been brought forward to the 2014-15 financial year Equivalent carbon pricing for liquid fuels and synthetic greenhouse gases – The per-tonne carbon price equivalent will also apply from 1 July 2014. It is applied to some uses of liquid and gaseous fuels and to synthetic greenhouse gases through fuel tax, excise and tariff legislation. The Excise Tariff Amendment (Emissions Trading Scheme ) Bill 2013 sets out amendments to the Excise Tariff Act 1921 (Cth) which are also required to start emissions trading on 1 July 2014. This Bill is required to ensure compliance with section 55 of the Constitution, which requires that laws imposing duties of excise deal with the subject of excise only. Given that the Government has now entered caretaker mode, the Amendment Bill will not be put before the Parliament before the election. Whether it is placed before Parliament after the election will depend upon the election result. It is worth noting that at the moment it appears that the Greens would not support the amendments. The Coalition remain firm in their opposition to the Labor Government’s scheme as a whole. Emissions Cap The “carbon pollution emissions cap” ( Emissions Cap ) dictates how many carbon units the Clean Energy Regulator ( Regulator ) can issue for each year of the flexible price period. The Emissions Cap has not yet been set. In order to set the Emissions Cap, regulations are required to be made and passed by both Houses of Parliament. Before regulations can be tabled in Parliament, however, the Climate Change Authority ( CCA ) must provide the Minister with a report which sets out a review of the level of carbon pollution caps and recommends an appropriate Emissions Cap (known as the ‘Caps and Targets Review’). Previously, this review would only have recommended an Emissions Cap commencing on 1 July 2015. The current deadline for the CCA to provide its final report to the Minister is 28 February 2014. However, as 2014-15 is now proposed to be a flexible price year, the Government must set an emissions cap for that year. The legislation requires that the Minister must consider a report by the CCA that recommends the level of the pollution cap for 2014-15 when setting the cap for 2014-15. Accordingly, the Minister wrote to the Chair of the CCA, on 19 July 2013, requesting a “special review” under section 59 of the Climate Change Authority Act 2011 which will require the CCA to provide a recommendation on an Emissions Cap for 2014-15 in its review. Additionally, the Amendment Bill provides for a pollution cap to be in place by 1 July 2014, either as set in regulations (in accordance with the process set out above) or as a default cap. The default cap, which protects against the possibility of the Government not being able to legislate a suitable Emissions Cap, will be 25 million tonnes below total covered emissions for 2012-13. Auctions The Clean Energy (Auction of Carbon Units) Determination 2013 ( Auction Determination ) has already come into force and provides a mechanism for the auctioning of carbon units. The Auction Determination, however, specifically refers to carbon units with a vintage year beginning 1 July 2015 or later. Although the Government has not prepared amendments to the broad range of existing secondary legislation to give effect to starting emissions trading on 1 July 2014, DIICCSTRE has indicated that the following provisions of the Auction Determination will be amended: sections 6 and 13(2) (concerning the auction schedule and the number of units to be auctioned in 2013-14) to add additional auctions for the 2014-15 carbon unit vintage, including advance auctions to be conducted in 2013-14. We note it is possible the Emissions Cap may not be set by the time these auctions are due to commence, therefore the volume of carbon units available at these auctions in 2013-2014 is proposed to be set at 40 million; and section 19, to make additional provision for the setting of an opening price for carbon unit auctions including advance auctions at 80% of the EUA price for the duration of the interim link. Although we understand that it will take another couple of months for the Regulator to technically design the auctioning software, even prior to the Government’s announcement to move the ETS forward a year, auctions had been scheduled to commence in the first quarter of next year, so there should be no timing issues in relation to this aspect. Linking with the EU ETS Amendments have already been made to the Clean Energy Act and the Australian National Registry of Emissions Units Regulations 2011 which will enable the linking of the carbon pricing mechanism with the EU ETS. There are no additional legislative steps which need to occur in order to make the one-way link operational. It appears the EU is supportive of the early move to an ETS with the EU’s climate commissioner, Connie Hedegaard, tweeting that it is “great” to see Prime Minister Rudd’s decision to seek a move to trading from mid-2014, and adding that the EU is “Speeding up #ETS linking discussions”. Nevertheless, there remain a number of technical developments which need to be implemented in order to harmonise the Australian and European registries. This is necessary because under the linking system, allowances are issued under both the Australian ETS and EU ETS and are solely represented by electronic entries in a registry. It is therefore necessary for the registries to be linked or ‘harmonised’ before linking can occur. The Government has officially said that the interim link will be in place by 1 July 2015 (that is when it was originally planned) and specifically states that this is “seven months before the 2014-15 compliance date of 1 February 2016” and that “in the meantime, liable entities and other market participants are able to open accounts in the EU Registry and trade in EU allowances”. Not linking with the Californian ETS In a cautious move towards a global carbon market, the Clean Energy Regulator ( CER ) has entered into a Memorandum of Understanding with the California Air Resources Board ( CARB ) which will run until 1 January 2016 ( MOU ). The purpose of the MOU is to establish the framework for the CER and the CARB to collaborate and share information on: the implementation of their respective market-based programs; opportunities for complementary actions (including the harmonisation of reporting and technical standards) to expand carbon markets, lower costs and preserve the environmental integrity of the programs, and the development and implementation of complementary programs to reduce greenhouse gas emissions. The MOU also provides for each party to build the capacity of their respective experts in the area with the option of temporarily exchanging personnel. It appears, however, that this collaborative process is not intended as the groundwork for linking the Australian and Californian schemes, at least not yet. In her public addresses last week, Mary Nichols, the chair of CARB, made it clear that the philosophy behind the Australian and Californian programs (for example, the different approach to offset credits) and the politics and current uncertainty surrounding the future of Australia’s programs, meant full linkage would be very difficult. How far the parties will be able to move along this collaborative path will be clearer in a matter of months, once the result of the Federal election is known and the policy of the winning party is able to be put into practice. Market expectations on price Given the decision to link Australia’s ETS to the EU ETS and given that the EU ETS is a much larger market than our own (Europe’s covered emissions are more than 6 times those of Australia) it is more likely than not that the price of Australia’s carbon units will match that of European Union Allowances, which as at July 2013 are trading at around A$6-$7.50. However, Europe is currently trying to make changes to its ETS which are aimed at pushing the carbon price up. A recent vote in the European Parliament has taken the first step towards implementing these changes. Accordingly, it is possible that these changes could be in place prior to 1 July 2014, in which case the European carbon price is likely to be higher than its current level and this will flow through to the price of Australia’s carbon units. Next steps Subject, of course, to the outcome of the Federal election, liable entities may wish to start considering a compliance strategy which includes the purchase of EUAs and Kyoto units (the latter of which are currently at record low prices). Our extensive experience in advising on transactions within the EU ETS means we are extremely well placed to advise you on the different options available. Liable entities will also wish to ensure that they have put in place appropriate internal arrangements to enable participation in the forthcoming auctions. In the meantime, it will be important for liable entities and others associated with the emerging Australian carbon market to keep a close eye on developments within Europe, and in particular the progression of the backloading proposal and longer term structural reforms. We can assist with a tailored updating service to keep you linked in to these developments. Please contact a member of our climate change team if you would like to investigate this opportunity. Continue reading
