Investing Tips in Agriculture

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Here is another interesting interview BTV conducted earlier this year. We had the chance to visit with Horst Hueniken, President of Dundee Agricultural Corporation, here are some excerpts from that insightful conversation:

Interview with Horst Hueniken:

What message do you want to send investors about the Agriculture sector?

It’s a tight supply demand situation in agriculture, but don’t be fooled, there are different parts of the agricultural sector, we called it the value chain and depending on where you are in that value chain the investment returns can be dramatically different.  I’ll give you an example. Last year we had corn prices rise to $7 a bushel, if you owned farmland you probably made money, but if you owned a ranch you probably lost money because that same corn price increase hurt your feed costs and some ranchers even had to liquidate their cattle because they got so squeezed. So know how the trends are affecting your particular area of the market.

 What are some of the trends you’re seeing today in agriculture?

One of the trends we’re seeing is organic foods, gluten free foods are clearly in an uptrend. We are also seeing that fish meal for fish farming is becoming a tighter and tighter market. As the wild fish stock declines, we’re seeing genetics or breeding as an area of growth and we’re seeing a variety of technology companies that are basically de-bottlenecking the food supply.

Have you identified any new agri-trends with respect to exportation?

 One of things we’re seeing in the beef business is increasing demand for beef from China, Japan, Taiwan. We’re seeing a lot more interest there and they’re willing to pay premiums to get that. That’s the main train we’re seeing.

Why do you think there is such demand from the Asian markets?

They’re struggling just to keep up with their food demand and one of the things that we have that they don’t is we have organic beef which takes a while to develop that status and certification, we’re already there, they’re not. Perhaps down the road they will be but at this point they are coming to us.

Can you describe the current fish demand?

 The reality is that the wild catch is continuing to decline, it has for years and will continue to, which means that fish farming will continue to grow. Over half of the fish now consumed are in fact caught, raised in farms and that’s expected to rise to about 65% over the next 20 years. On top of that there’s regulatory change. Some of the fish nets that are currently being used are creating an environmental problem, so there is new technologies coming out that eliminate the problems with lice, the problems with fish escapes etcetera. These technologies are being implemented not only here in British Columbia but also in Norway.

Do you have any final thoughts on investing in Agriculture?

 One of the things that I find investors get excited about is that agriculture is a tight supply demand situation and provides good inflation protection and it’s a good sector to be in, but think people overlook the fact that it’s very cyclical in certain areas, it’s not homogeneous. You can make money in one area and lose money in another, so you’ve got to keep that in mind and biological risk is something that is almost invisible but it’s very real and can wipe out your investments, so you need to keep on top of that.

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