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South Africa: Everything Just Keeps Growing Right for Afgri
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Business Day (Johannesburg)
COLUMN
9 May 2008
Posted to the web 9 May 2008
Johannesburg
INTUITIVELY, you know agricultural services group Afgri should be doing well: India, China and their cattle are chomping their way through the world's grain supplies and Afgri is in the grain storage and handling business. You can't go wrong with that, or can you?
That depends. You'd be right in that Afgri did well, reporting a 10,3% increase in headline earnings per share for the 12-month interim period to February 29. It declared a 33,35c dividend for the 12 months, which was 11,2% up on the previous 12 months.
But the trouble with farming is that when everything is going well (usually when it has rained well at the right time), farm gate prices drop through the floor. And when demand is up, it is usually for a combination of good reasons, such as a prohibitively high oil price and the related input prices. The price of fertiliser, for instance, rose 100% over the reporting period, and vitamins used in poultry farming went up several hundred percent.
In farming it seems you can't win, but Afgri avoids the worst by being a vertically integrated business, which allows it to stabilise the supply and demand see saw.
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That's the theory. In reality the double whammy of adverse supply-side conditions (last year's drought) and lacklustre pre-ethanol demand conditions, which limited the acreage planted, meant that Afgri's core grain business was not expected to do well.
But , in the circumstances, it did, mostly due to improved efficiencies and surgery in the retail business.
Now demand is through the roof, it has rained well and plantings are up, with a record 11-million ton maize harvest forecast. What could possibly go wrong?
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