Third Avenue Funds management has fallen on a bit of a rough patch this year, as Martin Whitman’s big bets on distressed companies have not yet paid off (I still wouldn’t bet against him in the long run), but they also just mailed out their latest quarterly shareholder letter, and I find this to be consistently among the better shareholder letters I read each quarter. The gold standard, of course, is the Berkshire Hathaway annual letter from Warren Buffett, but Martin Whitman and his fund managers usually do a very compelling, and much shorter, analysis of some of their investing ideas.

I bring this up today because Third Avenue International Value happens to be a larger holder of ABB Grain, which I also own (and I have some money invested in that fund as well). In Amit Wadhawaney’s letter, he provides a nice, succinct analysis of his investments in agriculture, which is essentially split between ABB Grain and a very similar Canadian company, Viterra (formerly known as Saskatchewan Wheat Pool).

Here’s one small bit of what he says about the two of them:

“The other characteristic shared by these two businesses is the sensitivity of their operating earnings to the volumes of grain passing through the network of grain elevators. Accordingly, periods of drought in their respective regions corresponded to reduced grain throughput, poorer profitability and reduced equity market valuations, which provided the Fund opportunities to purchase these shares at attractive long-term valuations.”

I couldn’t agree more — these are processing, storage and transport companies, firms which profit from the volume of grain, not the price of grain. If production in Australia returns to pre-drought levels, I’m very optimistic that ABB Grain will do much better … and of course, they’re working hard to diversify, too, particularly in New Zealand with their latest purchase of a feed company. So I’m being quite patient with this one, though it’s off its highs to a significant degree.

And just to be clear, this is not Wadhawaney’s favorite investment — the fund has been a net seller of ABB Grain over the last couple quarters, though it still holds a significant position.

You can read the commentary on page 19 of the shareholder letter — or if you’ve got time, read the whole thing, I always learn a little something when I do. Here’s the link to the PDF ...