Prime Ag Australia shares (ASX:PAG). Australian Agricultural Company shares (ASX:AAC). Select Harvests (ASX:SHV) shares. Riding the food boom
The UN’s Food and Agriculture Organisation (FAO) announced this week that world food prices hit new record highs for the seventh month running.
This has been a clear trend for a considerable time. Before the onset of the GFC, food prices were continually hitting new highs as a falling US dollar, and increased demand from the burgeoning middle countries in developing countries, produced a boom in commodity prices.
The impact of higher food prices on developing countries is of key importance when looking at this sector.
The recent unrest – and political upheaval – in countries such as Tunisia and Egypt brings into sharp relief just how damaging food inflation can be to the globe’s geopolitical situation.
China in the wings
We’ve recently heard some buzz around the market about an increased presence of Chinese interests looking to increase their exposure to the Australian agricultural sector.
Up until now, China has mainly been focused on the small end of the agricultural sector.
A recent article in the Australian reported that the focus of Chinese companies is projects worth around $40 million, with most purchases under $10 million – and mostly in stocks not listed on the ASX.
Some examples include Beijing Sanyuan Dairy Company, which recently made an investment in WA’s Dairy Farm, Qiantang Group, which has invested in Tasmanian orchard farms, and Shanghai Yanlong International Trade, which also took an interest in Tasmanian, although in this case it was a spring water producer.
Limited choice
Despite Australia’s position as one of the globe’s leading agricultural producers, there isn’t a lot of choice when it comes to listed food producers.
The food, beverage and tobacco industry group on the ASX only has about 60 stocks to invest in. The energy sector, by comparison, has well over 300 stocks listed on the market.
One smaller agricultural company is Prime Ag Australia (ASX:PAG). The company has only a $234 million market capitalization, but technically the stock has been trading smartly lately.
PAG looks to invest in Australian rural properties and water entitlements and undertaking cropping and livestock activities. Key crops include wheat and chickpeas, cotton and sorghum.
PAG has recently struck two-year highs and it is clearly benefiting from the recent rush in food prices.
Another company in the spotlight is Australian Agricultural Company (ASX:AAC).
AAC’s key businesses focus beef cattle breeding, farming and trading. The firm also has an interest in wholesale meat marketing.
AAC’s share price has struggled for some time, but we have recently seen some gains as the market becomes increasingly positive on the company.
Finally, Select Harvests (ASX:SHV) has also been showing some positive price momentum.
The company manages 60% of Australia’s almond orchards. SHV is also Australia’s leading manufacturer, processor and marketer of a range of nuts, fruit based, and associated products.
The ranges are sold domestically and exported to Asia, Europe and the Middle East.
We believe that the food sector, although small, will offer many opportunities over the next couple of years. We’ll be looking at the best stocks in depth over the next few months.