Those of you who’ve been around these parts for a while probably know that I think food and agriculture are likely to be important investment sectors in the decades to come — there’s simply no getting around the fact that the population continues to rise and arable land declines, which means the produce of that land should become more valuable, as will the land itself and the ingredients needed to produce food.
That doesn’t mean that agriculture is a “slam dunk” short term investment, of course — and today I’m selling one of my fertilizer positions, in Hanfeng Evergreen (a stock I also profiled as an “idea of the month” a couple years ago, since which it has been a disappointment). Hanfeng is a leading producer of advanced compound and coated fertilizers in China, and I either underestimated the competition or overestimated the ability of the company to sell their product effectively — they have been unable to reach the sales and profit levels that they need to become a great investment. I am continuing to hold my shares in Yongye International, which is also an advanced fertilizer company in China (though a different technology and strategy), but one with more of a branded distribution network that has been significantly more successful so far.
Part of the reason that Hanfeng has had trouble with their margins is that Chinese farmers still to a large degree use basic bulk-application fertilizers and haven’t (yet) wholeheartedly embraced the significantly more expensive coated and advanced fertilizers, even though the science seems to be clear that these fertilizers produce better yields and protect the environment better — I thought that switchover to Hanfeng’s types of products would be faster and help their pricing, but that hasn’t been the case and I haven’t seen enough progress to keep this investment. The fact that fertilizer producers like Hanfeng both compete with and have to face the high input costs of traditional fertilizers makes me think more about raw materials for fertilizers, though, and I believe those will continue to be in strong demand (though a very volatile market) for the foreseeable future — and to that end, I also increased my exposure somewhat to an exploratory mining company: Stonegate Agricom.
Stonegate is a newly public company, but they are majority owned (about 54%) by another of my personal holdings, Sprott Resource (also an ...