Schmidt's Agri-Food Thoughts 18 June 2012

WORLD’S SECOND LARGEST IPO OF 2012 IS . . . .

So, you consider yourself an informed investor. You watch CNBC, a.k.a. the cartoon channel light, each day. You have more investment web sites book marked than anyone on your block. So, name the company that will be the second largest IPO thus far this year. In what country will this IPO take place? We didn’t hear your answers. No, nothing to do with social networking nonsense.

Felda is to be the second largest IPO thus far in 2012, after the social networking silliness of Facebook. Felda? The company is the second largest palm oil plantation manager in the world(Financial Times, 14 June). Those 356 thousand hectares,~850 thousand acres or almost the size of the state of Rhode Island, are located in Malaysia. That country and Indonesia are the primary producers of palm oil, the most important vegetable oil in the world.

Per the same article above, this offering comes after that of Integrated Healthcare Holdings, one of largest hospital management companies in Asia. The offerings in Malaysia should put that nation ahead of Hong Kong in terms of new listings. Rather than listening to the crisis mongers, desperate this Monday to keep the Greek crisis on the front page, investors might want to instead look to where the economic center of the world has moved. Greece is the proverbial flea on an elephant’s back, while Asia is becoming the elephant.

The Street, desperate to avoid another year of dismal returns, has created two crisis fantasies. The first has been Greece causing the Euro zone to collapse into barter and barbarism. As the week opens, we now know to ignore that one. Other has been the “China is crashing” fantasy. That one is trotted out on regular basis in a futile effort to bail out their frantic and foolish bets on currencies and precious metals. An innocent victim of this foolishness has been the price of palm oil.

Above chart is of the price of Malaysian palm oil. It has become deeply over sold, in part due to a bizarre notion that Greece is somehow connected to the demand for palm oil. They may be confusing it with olive oil. However, we suspect that Malaysians, as well as other Asians, know more about palm oil than teenage traders, acting without adult supervision, in Chicago and Greenwich.

China and India, where palm oil is the primary edible vegetable oil, are net importers of palm oil. That need to import palm oil will only continue to grow. The Street seems to believe that Chinese consumers will cease using their woks and consume little oil because China is crashing. Could reality be different from what the Street believes, again? Might the Chinese continue to eat?

Per another article by the Financial Times, 14 June, the supply side for palm oil is also favorable,

“Standard Charter estimates that more than 20 per cent of trees in Malaysia are over 25 years old, which is close to the end of their productive life. That should be bullish for palm oil prices in the medium term, the bank says.”

Felda intends to use 49% of the proceeds from the IPO to acquire more palm oil acreage. With ready markets, China and India, nearby, perhaps Asian investors know more about their local businesses that the popular purveyors of fantasies.

As a consequence of the twin fantasies of soon to arrive economic and financial Armageddon, Agri-Food prices had become seriously depressed. See stochastic in above chart. As the frailties of those fantasies started to become evident, some of that selling pressure seems to be abating. The stochastic has turned up to give a rare buy signal. Investors may want to use the opportunities created by the purveyors of panic in the business media to research the Agri-Food sector and Agri-Equities.

Investor notes: Wilmar International, which trades in Singapore, is the largest producer of palm oil and the leading distributor of palm oil in China. While palm oil is the leading global vegetable oil, the next most important sources of oil are soybeans and canola.

10^th Agri-Food Commodities: An Investment Alternative, July 2012 will be released early next month. While clearly the most boring report in the Western world, it is the premier, independent source of research on returns produced by Agri-Commodities. Included in it are comparisons with U.S. equities, U.S. bonds and bills, Gold and Chinese stocks. For more information see our web site.

AGRI-FOOD THOUGHTS is from Ned W. Schmidt,CFA,CEBS, publisher of The Agri-Food Value View, a monthly exploration of the Agri-Food grand cycle being created by China, India, and Agri-Energy. To contract Ned or to learn more, use this link: www.agrifoodvalueview.com