Latin Finance - March/April 2011 - 24

argentina commodity investment

Feed the World
by Natalie Feary ith surging prices of agricultural commodities and a rise in food demand – especially from Asia – expected to continue, analysts see growing interest in taking exposure to the sector. An abundance of untapped arable land and relatively low internal consumption spotlights Argentina as a major beneficiary of these flows. “South America needs to provide the world with incremental soybean supply,” says Alexander Bos, Londonbased agricultural commodities analyst at Macquarie. “Accelerating soybean demand in Asia, especially China, is increasing the pressure on soybean supplies,” he adds. According to Bos, stocks are very tight after a demand spike in 2009-2010. He adds that a significant spread between the market price and cost of soybean production yields excellent margins for producers. Soybean and wheat prices are up 30% year-on-year through February 2011, according to UBS, which expects them to rise by at least another 20% in 2011. The importance of LatAm in this sector is huge, as there are very few places on Earth with supplies of fertile land like in Argentina or Brazil. Argentina has 1.7 million square kilometers of available farmland, and the Pampas Region has 760,000 square kilometers of the world’s most fertile farmland, according to the UN Food and Agriculture Organization (FAO). Agricultural use of land with potential in Argentina is 18%, and 17% in Brazil. In the US this rises to 66%. In China it is 47% and in India it is 73%, according to FAO data. Argentina is the world’s largest exporter of soya oil and third largest exporter of soybeans, says the FAO. It has a 42% share of global trade or production of soya oil or flour, and an 11% share of global trade of soybeans. “Argentina’s output of food is for 350

Demand for agricultural commodities is rising fast, propelling Argentine producers. However, they require significant investment to fully tap the country’s potential.

Fertile pasture: Argentina hopes to capitalize on food price hikes by farming unused land million people, but there are only 40 million people in the country so it will keep on being a leading food exporter with a growing importance,” says Axel Hinsch, CEO at Calyx Agro. Calyx Agro acquires, develops, converts and sells land in Brazil, Argentina, Uruguay and Paraguay. It had net sales of $140 million in 2010, and between 2011 and 2012 it expects to have 140,000 hectares under production. This should grow 500,000 tons of grains, some 65% of it soy, 20% corn and 10% wheat. Production is 70% from Argentina and Uruguay and the rest from Brazil and Paraguay. Brazil and Argentina are global leaders and low cost producers of sugarcane, soybean, chicken and beef, says Javier Martinez de Olcoz Cerdan, executive director of equity research at Morgan Stanley. “[They] have the opportunity to capture most of the growth in global food demand via land expansion,” he adds. “We see a clear opportunity for large LatAm agricultural firms, funded by investors, to create profitable agribusiness platforms, leading the sector globally,” says Cerdan.

Price Beats Volume Lag

Though political restrictions in Argentina pose a challenge, the expectation is that these will ease. And a rally in prices more than compensates for the decline in volume in Argentina caused by drought, according to UBS. The value of grains production from Argentina is predicted to be $32.3 billion this year, up from $26.6 billion in 2010, according to data from

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March/April 2011

Latin Finance - March/April 2011

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