Brett Stevenson

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• Brett Stevenson

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Evolution of Agricultural Investment
R D Investment
Commodity Index Funds
Increased Diversity ?
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Historic Agricultural Boom

• 10 to 20 year boom in agricultural prices
• Every day an additional 200,000 people need to be
  fed
• Over the last year dramatic increases in prices
• Rice up by 118
• Wheat up by 95
• Soybeans up by 88
• Corn up by 66
• Cotton Oats up by 50
• Investment of this kind has legs for another
  four or five years
• Bill Barbour (Fund manager Deutsche Bank DWS
  Global Agribusiness Fund)

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Future Issues for Agricultural Sector

• Land is a finite resource
• Majority of undeveloped land is in high
  geo-political risk countries
• Technology investment and economies of scale
  required to overcome high input costs
• Diversion of crops into ethanol production.

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Current Investment Avenues

• Commodity Index Funds
• Significant returns gained through booming
  commodity prices
• Now Overinvestment creating structural issues
• Publicly Listed Companies
• Management
• Sector Traction

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Commodity Index Funds

• Huge Jump in investment in Long Only Commodity
  Index Funds in last 5 years

UBS Bloomberg. Constant Maturity Commodities
Index Presentation (June 2008)
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Index Commodities

• Energy ? Crude Oil, Heating Oil, Gasoline,
  Natural Gas, Gasoil
• Precious Metals ? Gold, Silver
• Base Metals ? Aluminum, Copper, Nickel, Zinc,
  Lead
• Softs ? Coffee, Sugar, Cocoa, FC Orange Juice,
  Cotton
• Grains ? Wheat, Corn Soybeans
• Livestock ? Live Cattle, Lean Hogs

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Index Funds An Oil Play?
Dow Jones-AIG Commodity Index
Goldman Sachs Commodity Index
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High Returns Sustainable?

• Index Returns

SP GSCI - Goldman Sachs Commodity Index
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Commodity Index Funds

• Key Driver - Backwardation
• However persistent Contango market since 2004.
• Contango market created by increased levels of
  investment?
• Liquidity constraints
• Regulatory risk

Spot Price
Futures Price
350
Backwardation
325
Contango
300
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Makeup Index Returns Killer Contango

• Roll Returns are negative ? divergence of
  investment correlation to the underlying
  commodity
• Decline in Roll returns due to Contango

Widening ?30 over last 2 years
Roll Returns 1990 - 2005
1990
2007
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Liquidity, regulation issues

• Liquidity promoted as a benefit of Commodity
  Index Funds
• Trading activity in futures markets seen as
  creator of liquidity.
• Underlying markets too small for funds invested
• Government intervention via CFTC

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Publicly Listed Companies

• Limitations
• Access to underlying commodity limited
• High prices dont always higher returns.
• Management key to returns
• Sector Traction limited

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E.g. Australian Agricultural Stocks
share price
ASX 200
3 year share price history
AWB Limited (AWB) vs. ASX 200
ABB Grain Ltd. (ABB) vs. ASX 200
Graincorp Ltd. (GNC) vs. ASX 200
Australian Agricultural Company Ltd. (AAC) vs.
ASX 200
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Winners Related to the Commodity Price?
Nufarm Limited (NUF) vs. ASX 200
Incitec Pivot Limited (IPL) vs. ASX 200
(Financial Times. www.ft.com/markets/interactivech
art.asp )
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Where to next

• Mega Trend
• Global Mutual Funds
• Total Return Philosophy (TRP).
• Requires massive increase in Beta investments.

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Profiting from high Commodity Prices

• Investing in arable land.
• Family farm dominance in Australia providing huge
  opportunity for restructure by consolidation.
• Diversification Key to high sustained returns
• Capturing opportunities complex due to
• Increased Seasonal Variance
• Regional Performance Variance
• Commodity situational opportunities

Business Review Weekly (BRW). June 19-25 - 2008.
Why the Smart Money is in Agribusiness
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Examples AgRisk Projects

• Broadacre Farming Portfolio - Profiting through
  geographic diversification
• Bloodline Database Management Technological
  edge in the wool industry

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Broadacre Farming Portfolio

• Direct investment in commodity production
• Ensuring returns through geographic diversity
• Portfolios tailored to risk appetite
• Identifying outperforming regions through a
  network of agronomy partners

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AgRisk Network
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Projected Returns
MCE Minimum Crop Estimate
ACE Average Crop Estimate
Potential Bumper crop
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Bloodline Database Management

• By agistment and continuous database bloodline
  selection MarketCheck is able to outperform
  established sector ROC.
• Competitive advantage generated through
  technology, specialisation, capital, superior
  industry and market knowledge

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Projected Results
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Overview

• Global Direct commodity investment reaching
  maturity.
• Capital build in sector is now looking for deeper
  more diverse portfolio investment with less bias
  on liquidity.
• Australia offers unique opportunity due to
  structural shift, large economies available and
  highly developed skill base.

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Contact Us

• www.marketcheck.com.au
• Ph [phone]
• Email marketcheck_at_agrisk.com.au