Former Soros partner ‘farming’ in Russia
FORMER George Soros partner Jim Rogers is leveraging Russia’s agriculture renaissance as his next big investment.
Rogers, who frequently appears forecasting doom for major markets, has purchased at least three stakes in the superpower: airliner Aeroflot, the publicly traded Moscow Exchange and the country’s top fertiliser producer, PhosAgro, where he joined the board of directors in September 2014.
“PhosAgro is an excellent company that offers investors excellent value due to the high-quality fertilisers it produces, its vertical integration and low production costs.
“While Russian stocks have been under pressure through most of 2014, I think that PhosAgro’s share performance, which is among the best for Russian companies in 2014, shows that investors understand the company has world-class assets and holds significant potential for sustainable growth.”
Rogers’ move came as Russia implemented a ban on imports of agricultural products from the EU, which forced domestic producers to increase their output. Effects were seen in 2016, when food imports decreased by 6 percent while exports increased by 5 percent
Mild winters, $3.3 billion (R39bn) in federal investments, easier lending and the rising need to supply feed to domestic husbandry to replace imports, have combined to produce what experts expect to be the biggest wheat harvest in its history, according to the United States Department of Agriculture (USDA).
Agricultural production grew by 5 percent in 2016 as Russia aims to become the leading agricultural power.
“Record wheat output in Russia combined with its price-competitiveness – Black Sea wheat is currently by far the cheapest in the world – is expected to propel Russia to become the world’s top wheat exporter this year at 30 million tons, unseating the EU, which became the world leader in 2013/14.
“While this year’s developments are driven in part by a poor EU wheat harvest, Russia has been gaining wheat export share for several years, alongside the EU, its main competitor and the top exporter over the previous three years,” said a USDA forecast from September 2016.
Dominance
Harvest dominance marks a return to Russia’s glory days before millions of peasant farmers were enrolled into collective farms instated by Soviet dictator Josef Stalin from 1928 to 1933. Famine and starvation eventually drove millions of peasants off the land to cities.
Russia is now planning to reclaim land for agriculture use through legislation. In 2016, it passed a land-acquisition law that led to the withdrawal of 34 000 hectares from “unscrupulous owners,” twice as much as in 2015, Alexander Tkachev, agriculture minister of the Russian Federation told a meeting of the Board of the Ministry of Agriculture of Russia.
Tkachev said the land resources in Russia had “inexhaustible potential,” suggesting the government could return 10 million hectares of vacant land to agriculture use.
The same climate change that has fostered a mild climate optimal to grain growth in Russia may also be a detriment, though. Some of the country’s prime wheat-growing regions may experience lower yields as precipitation is expected to fall more than 22 percent by 2020, according to the Climate Change Post.
In 2010, a hotter than usual summer caused a drought that reduced the country’s grain harvests by 30 percent.
PhosAgro held its initial public offering (IPO) in 2012, and has since grown its phosphate-based fertiliser production volume by 37 percent through to 2016. It also achieved 50 percent growth in production and expects 20 percent additional growth through to 2020, according to a shareholder presentation, as agriculture production in Russia picks up.
Demand for fertiliser in Russia increased 16 percent in 2016 compared to the previous year, accounting for 29 percent of sales, from 24 percent the previous year.
Revenue fell 1 percent from 2015 due to lower global fertiliser prices – the lowest since the 2009 financial crisis – and depreciation in the rouble, despite a 9 percent increase in fertiliser production and sales volumes. Earnings per share increased 64 percent to $8.07, year over year. Operating cash flow declined 20 percent to $751 million. The company paid 96 cents per global depository receipt in dividends.
Rogers told Reuters this week that he would also like to invest in North Korea.