Norman Borlaug Passes Away

The AP reports the Nobel laureate agricultural scientist and Texas A&M professor's passing at the age of 95. Borlaug remained active in the field until recently. I recall reading this Wall Street Journal article seven years ago, about his work in Africa at the time. From that article, this African's prayer came to mind when I read that Borlaug had passed away:

His successes have made the white-haired Iowan a household name in parts of Africa. "He's our hero," says Mr. Boateng, the secretary of the Fufuo Growers Association, who fondly recalls Dr. Borlaug sitting with the villagers and husking corn. "Every time we pray, we pray for Dr. Borlaug: 'Lord, we know he's elderly. Please extend his life.'"

R.I.P.

Daewoo's Madagascar Deal Nixed

In a post last fall ("An Unprecedented Investment in Food Security"), we noted the report by the Financial Times that the Korean conglomerate had leased half the arable land on Madagascar for industrial farming. Yesterday, the Financial Times reported that that deal has been nixed ("Madagascar scraps Daewoo farm deal"). Excerpt:

South Korea’s project to transform Madagascar into its breadbasket, branded by some as neo-colonial, came to an abrupt end on Wednesday when the Indian Ocean island’s new president said he would shelve the plan.

Daewoo Logistic’s deal to lease a huge tract of farmland, half the size of Belgium, to grow food crops to send back to Seoul was a source of popular resentment that contributed to the fall of Marc Ravalomanana, the former president.

Andry Rajoelina, who was declared president by the military and constitutional court after months of demonstrations and who will be formally sworn in on Saturday, said that Daewoo’s plan was “cancelled”.

More on Japan

In yesterday's Financial Times, David Pilling wrote that many Japanese are pining for Japan's pre-industrial days, "Japan harks back to an age of innocence":

On a visit to Tokyo this week, on more than one occasion when I asked how Japan should tackle the economic crisis, my interlocutor turned with ninja-like alacrity to the topic of pre-Meiji Japan. The period before American warships forced the country open in the mid-19th century was regularly invoked as a prelapsarian idyll, a time when Japan did not have to deal with the grubby business of earning its crust in the world.

Eisuke Sakakibara, the former vice-finance minister indelibly branded Mr Yen, describes a country that was peaceful, orderly, unspoilt and friendly. “That was what pre-Meiji Japan was like. We should go back to that,” he says.

His invocation of a more innocent, pre-industrial age could easily be dismissed as idle chatter were it not for the fact that it keeps coming up.

[...]

There is now much talk of putting more emphasis on agriculture and de-emphasising the manufacturing industries on which postwar wealth was built. “Japan, having major strength in manufacturing, will probably suffer most,” says Mr Sakakibara, who argues that, even after this economic crisis subsides, the world will never return to previous levels of material consumption.

Japan’s farm industry is commonly regarded as heavily protected, but the Japanese worry that they only produce 40 per cent of their calorific requirements. Mr Sakakibara supports the DPJ’s proposals massively to increase subsidies to agriculture and to industrialise the family-run farming industry. He has been trying to persuade Toyota that cars are a dying industry and that it should turn its engineers on to farming efficiency instead. The era of just-in-time carrots could soon be upon us.

An Unprecedented Investment in Food Security

Yesterday, the Financial Times reported that South Korea's Daewoo Logistics had leased half the arable land on Madagascar ("Daewoo to cultivate Madagascar land for free"). From the article:

Daewoo Logistics of South Korea said it expected to pay nothing to farm maize and palm oil in an area of Madagascar half the size of Belgium, increasing concerns about the largest farmland investment of this kind.

The Indian Ocean island will simply gain employment opportunities from Daewoo’s 99-year lease of 1.3m hectares, officials at the company said. They emphasised that the aim of the investment was to boost Seoul’s food security.

“We want to plant corn there to ensure our food security. Food can be a weapon in this world,” said Hong Jong-wan, a manager at Daewoo. “We can either export the harvests to other countries or ship them back to Korea in case of a food crisis.”

The editors of the paper criticized the terms of the deal as "neocolonial" in a related editorial, "Food security deal should not stand".

Hopefully, someone from the precision agriculture company Hemisphere GPS (TSX: HEM.TO) has arranged a sales call with Daewoo.

The graphic above is from the FT article.

Hemisphere GPS Reports

In its press release, Hemisphere GPS (TSX: HEM.TO) reports that its Q3 revenue grew 46% year-over-year, and its gross margins increased to 52%. Expenses increased 46% year-over-year as well (partly due to the acquisition of Beeline), and the company posted a loss of about $233,000 for the quarter (the loss would have been about twice that if it weren't for Hemisphere's foreign exchange gains).

On the Value Investors Club, Edelheit quotes these bullet points from Canaccord,

1) Revenues USD$13.2M up 46% yr/yr, Gross profit margins 51.6% and EPS (0.00) was better than consensus 12.6M GPM 48% EPS -0.01 (our forecasts 13.2M, GPM 50% /-0.01)
2) Company maintained FY guidance of revenue growth of greater than 45% (we believe mgnt will likely increase its FY guidance to better than 50% on the 11:00am CC)
3) Gross profit margins big positive surprise at 51.6% (slowest qtr of the yr) up 500 bps yr/yr, this should support current forward estimates if not cause some EPS estimates to increase in 2009 (street is 0.25-0.30 USD in FY2009)
4) FX trend of weakening cdn$ is positive for HEM margins (substantial cdn based operating costs), these margins were realized against a cdn$/USD$ spot of 1.06 (obviously we are at 1.18 now)
5) No signs of AG related slowdown
6) At C$1.70 share stock HEM has 20.5M in cash or 0.37/share, is trading at 4.4X 2009 EPS , growth rates in excess of 50% (and company now benefiting from favourably FX trends)
7) Company bought back 181,00 shares in Q3 @ 2.46/share

Edelheit then comments,

Why the heck is this at $1.70? Seriously, this is one of the most ridiculous malfunctions of the market that I`ve ever seen. 46% revenue growth, much better than expected margins and the stock is at 4.4X earnings?

Of course, Hemisphere isn't trading at 4.4x trailing earnings, but at 4.4x estimated 2009 earnings. If Hemisphere actually meets those earnings estimates, I'd expect it will trade at a higher multiple.

The photo above comes from the Hemisphere GPS website.

Will the Credit Crisis lead to a Food Crisis?

In a recent post ("Jim Rogers on CNBC Europe Early This Morning") we mentioned that Rogers continues to be bullish on agricultural commodities. Another investor who remains bullish on agriculture is Aaron Edelheit. Today on his blog, Aaron Edelheit writes that low global inventories, continuing demand growth from China, and the credit crisis together are setting the table for food shortages next year ("Looming Food Catastrophe in 2009"). Regarding Chinese demand, Edelheit quotes an article by Jim Lane, editor of Biofuels Digest¹ ("It's not food, it's not fuel, it's China: Expanded study of impact of China on global corn market") that argues that demand for corn has been driven primarily by the growing consumption of meat in China (since corn is used to feed livestock):

“Even with all the growth, Chinese meat consumption is still 45 percent less than the average consumption in the US,” Lane warned. “An additional 277 million tonnes of grain would be needed to support China at parity with the US. That would take 68 million acres to grow. There isn’t that kind of arable land available anywhere is the world, whether we grow grains for renewable energy or not.”

Regarding the impact of the credit crisis, Edelheit writes,

The credit crisis is hammering South American farmers, to the extent that they cannot get fertilizer². No fertilizer, no planting of crops.

Further, suppliers are asking farmers in the U.S. for more upfront money to make sure they aren’t holding delinquent debts, causing farming to be a bit more uncertain this year.

Edelheit bases this on an article by Carlos Caminada, Shruti Singh and Jeff Wilson on Bloomberg yesterday ("Farm-Credit Squeeze May Cut Crops, Spur Food Crisis").³ This raises two questions related to one of Edelheit's holdings, Hemisphere GPS (TSX: HEM.TO): if farmers can't get credit to buy fertilizer, can they get credit to buy Hemisphere's precision agriculture equipment? Do they need credit to buy Hemisphere's equipment? Edelheit doesn't say, as he doesn't discuss his stock positions on his blog.


¹I find this sort of primary research -- the kind often done by industry-specific analysts, but occasionally done by money managers such as Edelheit -- impressive. Partly as a result of doing this sort of research, occasional commenter Daniel Wahl (his blog) invested early in some winners in the agricultural space, as I noted in a post last June ("Stress Fractures in Titanium"). Daniel has taken his blog in something of a new direction recently, as he prepares to launch a new blog, and he no longer writes about his trades, but he did note in a recent comment thread on his blog that he is still holds Hemisphere GPS, and calls on the fertilizer company Potash Corp. of Saskatchewan (NYSE: POT).

²This may have been a factor in the recent correction in the prices of fertilizer company stocks.

³Jim Rogers similarly linked the credit crisis and commodities in his CNBC Europe interview last week, noting the difficulty anyone would have in borrowing money to dig a mine today.