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Ecuador is sending extra food to Russia.

The EU embargo on agricultural products to Russia could lower some agri business share prices temporarily and could create create investment opportunity.  At the same time Ecuador’s decision to up agricultural sales to Russia to fill the void created by the embargo could push Ecuador food prices higher.  Seafood.com said that Ecuador plans to send to Russia’s agriculture department a list of businesses ready to increase or start agriculture and food exports to Russia.  Three dozen Ecuadorian companies are ready to boost fish and seafood deliveries to Russia.

Here are three agri investment updates.

First, our ginseng crop is coming right along.

I planted 50 ginseng plants two years ago as  a test.  The north facing slopes in this area are one of the best for Wild American Ginseng growth.  I have many acres of this type of otherwise worthless (commercially speaking) land.

I had success so I planted about 1,000 seeds last autumn and have another 1,000 scheduled for this fall.

ginseng

Some of my first plantings bloomed this year.

ginseng

Each pod holds two seeds.  These are dried in sand for a year before planting.

Maturity of the root takes about seven years to reach harvest stage.  This is a slow process but the farming takes little work once planted.  It’s best not to weed or fertilize in any way.  This makes the plants stronger so the root brings the best price.

Good Wild American Ginseng root sells for a premium but there are numerous middlemen before the root gets to the biggest market, China.  I have been reaching out to contacts in China to see if I can find a buyer direct.  If I connect I plan to expand this crop quite a bit more.

Oranges and Greening

We are testing a new use for the biostimulant Biowash.   BioWash seems to have greatly helped our orange production.  The year I purchased the grove we harvested just over 1,800 boxes.

In our first year we sprayed the grove once with BioWash.  Production rose to 2,400 boxes despite the fact we eliminated a third of the trees that were suffering from a root rot disease.

This means our yield per tree doubled.

In 2011 we sprayed twice with bio wash and that year our production rose to to 3,400 boxes.  We maintained that level of spray and harvested just over 3,000 boxes in 2012.

In 2013 Citrus greening clobbered us and all the other groves.  Production dropped 65%, but we were testing.  One test on two idential grapefruit treees sitting side by side showed amazing results.

grapefruit

The tree on the right was sprayed once a month with a 50 to 1 solution of BioWash.

Our friend of two decades, Ted Tidwell,  the manufacturer of BioWash, has introduced to me a BioWash solution to citrus greening.  For more information contact Ted Tidwell at biowashted@yahoo.com

Sandalwood & Nestles

We published our Sandalwood Investing report this last January when shares in the Sandalwood plantation company, TFS Corp. (share symbol TFC) were selling at A$1.19. The shares yesterday passed A$2.15.

sandalwood chart

(click on image to enlarge.)

See the updated TFS Corp. share chart here

TFS has announced that a Nestle owned company will buy $500 million worth of sandalwood oil from them.

An ABC.net article entitled “International dermatology company Galderma confirmed as multi million dollar buyer of sandalwood oil” (1) by Tyne McConnon says:  The world’s largest producer of Indian sandalwood says Nestle-owned company Galderma is the multi-million-dollar buyer of its oil.

Tropical Forestry Services (TFS) announced in March it had signed a deal expected to be worth half a billion dollars with a pharmaceutical company.

TFS has plantations in Western Australia, the Northern Territory and Queensland.
The company’s head of global products Mario Di Lallo says Galderma will use the oil in various products.

“Things like eczema creams, warts, acne, actinic keratosis, which are the pre-cancerous skin lesions that people go and get cut off and burnt off.

“Most things that afflict the skin.”

Mr Di Lallo confirms the deal to sell the sandalwood oil for US$4,500 per kilogram for up to 20 years.

The TFC price may still be quite low.

The analyst we used who has visited the plantation and issued a report on the shares of TFS Corp. gave a Buy recommendation with a target price of .A$.90 cents.  The price was A$.77 cents at the writing of the report.

The report said:  We visited TFC’s operations around Kununurra and seeing for ourselves the proceeds from the first 8ha harvest, what is clear is that the knowledge gained from the earliest plantations has been deployed and has resulted in material improvements in Indian Sandalwood growth; as such whilst yields over a number of years are likely to fall short of PDS targets we see harvests for more recent plantings as likely to considerably exceed heartwood developed per tree.

With confidence provided regards heartwood and oil production, the next key uncertainty is sustainable pricing as larger volumes of wood and oil become available; we are of the view that emergence of a sustainable, legal supply (most Indian Sandalwood is poached) will see an increase in demand from pharmaceutical and fine fragrance sectors, with the growing wealth of India and China driving decorative carving, fragrance and religious ceremony needs.

The dwindling supply of natural Indian Sandalwood has seen a considerable amount of trade on the black market rather than via official traceable channels and product substitution (both different sandalwood species and synthetics) occur, which does present uncertainty as to how inelastic pricing is as sustainable plantation volumes increase.

TFC is the only traceable supplier for pharmaceutical industry

Demand estimates shows there appears little prospect of oversupply.

Indeed, by the time the FY13 plantings are harvested and sold in 2028 the likely demand from an increasingly wealthy India and China will continue to favour demand.

Scope for +$3bn of operating profit over next 15 years vs current market cap of $220m.

Market will pay attention to TFC at some point in time.

As such, when combined with harvesting and processing fees for MIS and Wholesale plantations it is not unreasonable to anticipate +$2.5bn EBITDA being generated over the coming fifteen years from all harvesting and sales activities, on top of another ~$750m EBITDA from establishment services if the company can consistently generate +1,000ha of annual new plantation sales.

Stock market will inevitably appreciate ‘embedded value’ given sheer scale of potential profits.

However if we look forward a number of years, say a decade at which point TFC could be generating sustainable EBITDA of ~$400m from harvesting its owned plantations, harvesting and value-adding MIS investors’ harvested wood and also from new establishment fees; in turn this could generate EPS of +80c which if applied to a PER of ~13x (a +25% discount to the current FY14 XSI aggregate) implies a potential ~$10 share price offering robust prospective long-term returns from current levels.

The shares have risen from A$1 to A$2, but if this analysis is correct the price could reach A$10 in the long term (appx. 15 years).

We have published a complete report on Sandalwood Investing ($2.99) which is available at www.amazon.com

Screen shot 2014-01-28 at 5.28.13 PM

You can order the report for Kindle or download on your computer at Amazon.com for $2.99

You can order the book in print for $10.79

Two of my favorite places to invest are in agriculture and water. I hope these agri updates create ideas for investing for you.

Gary

Learn more about agri and sandalwood investing at our October Montreal International Investing Seminar.

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(1)  ABC article International dermatology company Galderma confirmed as multi million dollar buyer of sandalwood oil