The Kings of soy, maize, meat and milk in Argentina

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A review of the major players in Argentine Agriculture.

The agricultural sector is one of the most diverse parts of the Argentine economy. The golden years of the landowners and their large estates in the Humid Pampa, some almost as large as small countries of Europe, has been left behind for the most part. There are still some very large farms, ie here is one farm of one million acres. However despite the change of eras, now in the 21st century, some agriculture producers still stand out from the rest as the Kings of production.

The main ones are:

Adecoagro. ( milk production )

The company led by Mariano Bosch produces more than 252,000 liters of milk per day through its modern dairy system, which produces milk from more than 6000 cows at its Venado Tuerto, Santa Fe facility.

Argentine dairy production has been the hardest hit in the agricultural business in recent years. In an adverse scenario, where 10,000 producers operate, the most prominent is one of the few companies that can reflect stock numbers on the rise. Adecoagro is the largest milk producer in the country with 6880 milking cows, which average 36.7 liters of milk each per day.

The group’s dairy division reported an average annual turnover of US $ 33 million in the last three years, although volumes increased from 79.4 million liters in 2014 to 92.4 million liters in the last year. That is, one of every 100 liters produced by Argentina is generated by Adecoagro.

For the consultant Fernando Gil, partner of Agroideas, there is no doubt: “The dairy industry is the one that has suffered the most in the last few years at the primary level, especially for prices and margins. As the crisis progresses, the number of producers declines and in turn, the lower production is left in fewer hands because those with greater financial backing endure. ”

Adecoagro was created in 2002 by a group of Argentine investors who, through a partnership called Argentina Farmland Investors, with the participation of Hungarian tycoon George Soros, used the agricultural assets of the Perez family company. The 74,000 hectares that this group acquired, for about US $ 54 million, was the starting point of an expansion phase that today, allowed it to add 269,000 hectares in Argentina, Brazil, and Uruguay. In turn, it has a market value of US $ 1.38 billion on Wall Street, where it has traded since 2011.

The dairy division never exceeded 5 percent of the company’s total turnover, but represents one of the most advanced structures in its category throughout the region.

In their latest annual balance sheet, they explain their position: “We believe that we were the first company in South America to implement the modern system of dairy production (industrialized animal farming ), resulting in a more efficient conversion of liquid milk and production per cow compared to our peers in the region”.

In turn, the company details the figures and operations of its best year: “For most of 2016, we sold all our liquid milk production to four milk processors. These companies manufacture a range of consumer products sold in Argentina and abroad with which we negotiate monthly the price of liquid milk according to domestic supply and demand. Our milk segment remained practically unchanged, with a drop of 18.2 percent in liquid milk prices from US $ 0.33 per litre in 2015 to US $ 0.27 in 2016, which was offset by an increase of 4.4 percent in the quantity sold. ”

In practice, the company breeds its own stock replacements, which are feed during the first 60 days from birth with pasteurized milk and high-protein flour. Male calves are fed with concentrates and hay for an additional 30 days. They are then sent to the firm’s feedlot to be fattened for sale. Young heifers stay in open pens for the next 13 months, where they feed on concentrates and fodder until they are ready for breeding. Delivery occurs nine months later.

Heifers are then milked for an average of 320 days. Dairy cows are once again inseminated between 60 and 90 days after calving. This process is repeated once a year for a period of six or seven years, achieving a pregnancy rate of up to 90 percent in the herd of Adecoagro, as reflected in its latest report sent to the Stock Exchange.

MSU. ( Soy )

Manuel Santos Uribelarrea Balcarce is one of the new faces of agriculture that belonging to one of the most traditional families. In the last two decades, he was able to take the 100-year know-how of the family at a regional level and crown himself with the crown of soy production.

A farm of 17,000 hectares in the core or nucleus area of Argentine agricultural production was the initial start for Manuel Santos Uribelarrea Balcarce to enable him to boost the expansion of the family business to another scale. Strengthened by the know-how he had in hand, he advanced in an expansion that led him to become one of the main grain producers in the country.  Now he is producing more than 600,000 tonnes per year.

The current business is part of a parent company known as MSU, alluding to the acronym of its founders. Both Santos and his father, Manuel Santos Uribelarrea Duhau, are descendants of the former Minister of Agriculture of the government of Agustín P. Justo, Luis Duhau. The agricultural tradition of the family dates back to the middle of the nineteenth century and in the twenty-first century, continues to stand out with an extension cultivated in the last cropping cycle of 143,638 hectares.

Crop production in the 2015/16 season represented an 18 percent increase in volume over the previous season, due to the increase in total area planted, higher yields in soybeans and a greater participation of the maize sowing area.

Nonetheless, soybeans, the company’s main crop, reported a volume 7 percent lower than the previous season, with a total of 266,953 tonnes. This was sufficient to position it as a benchmark at the national level. Meanwhile, corn, another MSU strong point, increased its volume by 54 percent and climbed to 260,963 tonnes. In wheat, the company harvested 99,320 tonnes, four times more than just five years before.

For consultant Fernando Gil, partner of Agroideas, contrary to what was installed in the last decade, the production of soy is very fragmented among tens of thousands of small producers. This statement is even more graphic considering that MSU’s soybean production, the leading company in the country, barely represents 0.5 percent of the total volume sold in the last season.

With respect to the current year, Gil anticipates that in full grain harvest, it is estimated that total soybean production will be among the highest in history despite inclement weather. “The yields at the general level are very good,” says the consultant, adding: “High volumes, like what happens in Brazil, are at the moment affecting the low prices.”

MSU current numbers are strong. In the last fiscal year, the company billed $ 1,652 million and posted an extraordinary profit of almost $ 1 million per day to $ 324 million. The figures represent its ‘hay day’ in comparison against those of the previous year when the company lost more than $ 40 million over $ 1 billion in sales. In the first six months of the current year, MSU already billed $ 1,153 million and earned nearly $ 57 million. In their balance sheet, they analyze how they see the future: the withholding of retentions in maize and wheat and the gradual tax reduction proposed by the Government in soy in conjunction with the improvement in the exchange rate, has markedly improved the margins invigorating the agricultural sector.

Investor Juramento.  (The hacienda of the North).

The brand of the largest shareholder of Banco Macro, Jorge Horacio Brito, produces more than 63,000 head of cattle per year on its own 87,414 hectares, in the province of Salta.

Jorge Horacio Brito is above all, a local banker. However, it can be said that he had an excellent vision about the future of cattle raising in Argentina when he decided to venture into the activity in the early ’90s with the purchase of farmland in Salta. Until that time, it was difficult to predict that the advance of direct sowing and soybean cultivation would lead to a migration of beef production to the north of the country.

Today, Inversora Juramento is the company that brings together the agricultural businesses of the Brito family. To the 87,414 hectares of its own that it farms in Salta, they have also added a freezing works, known as Bermejo, where it sends all of its cattle for processing.  Only last year, according to the balance sheet closed on 30 September 2016,  Inversora Juramento invoiced $1,204 million, 63 percent more than the previous year. The company increased its stock of 77,935 head in the previous year to 80,890 head; that is 4 percent, with respect to the balance of September 2015 and 20 percent with respect to the year closed in September 2014. That figure means eight of every 100 head that graze the grounds of the province are owned by them. In the same period in Salta, the breeding herd decreased from 25,775 to 21,741 head.

Deliveries to Frigorífico Bermejo reached 63,233 head, an increase of 14.2 percent over the 55,382 processed in the previous period. That represents only 0.5 percent of the total number in Argentina, a figure that shows how fragmented the sector still is.

The variation of the wintering stock held by this company increased in the 4th quarter of 2016 compared to the same in the previous year, 13.4 percent (59,249 vs 52,160) to be more precise.

“The cattle operation is still recovering its stock numbers, but only slowly with the use of insemination. Prices rose sharply over a year ago, providing a good margin for this activity. However, inflation has eroded profit margins somewhat. This year they had a rebound around 10 to 12 percent for calf wintering and fattening, “analyses Fernando Gil, partner of Agroideas. “Meat production grew slightly but there was no increase in the price at the processing end, as many had assumed. Whilst exports, although increasing in volume in nominal terms, is still very low and will not have much expansion in the medium term, for two reasons: there are no heavy steers available for export and the low exchange rate does not favor the export option “He says, adding:” Today, the business is in breeding and rearing.

In summary,

The company is vertically integrated into all phases of the business: breeding, wintering, feedlot, industrialisation, marketing and direct sale to the public through butchers. In terms of profitability, the last year reported a profit of $ 54 million. In turn, with the acronym INVJ, the company is listed on the Buenos Aires Stock Exchange where this year, between highs and lows, its valuation is around $ 5,300 million pesos, that is, about USD 350 million. As the main shareholder, with more than 90 percent of the package, the mentor is the banker-cattleman Jorge Horacio Brito.

Cresud. (On the podium of corn).

The agricultural division of the holding company of the Elsztain family stands out in maize production with a volume that last year reached 189,708 tonnes.

Cresud and IRSA are two sides of the same coin. But it is Cresud, the agricultural holding company, which controls IRSA, the real estate company of the group. The core business of Cresud is agriculture and it is in the maize production where it develops its greatest potential. In the last fiscal year (to June 2016), maize reported a volume of 189,708 tonnes in Argentina. This figure amounts to almost 230,000 tonnes if its operations in Brazil, Bolivia, and Paraguay are included. Although its volume fell compared to 2015, when it had harvested 254,000 tons in Argentina and more than 310,000 in the entire region; it represented the second best performance in maize, making them the top producer in this category.

“This campaign has taken a leap forward in the production of maize since the liberation of the market and removes it from the previous constraints in the market,” says Fernando Gil, partner of Agroideas. “The price for the producer has improved and this increase in production is expected to be the new floor. This was largely due to hectares that were gained over soybeans, encouraged by an improvement in the profit margins of maize, “explains the consultant and adds:” Maize always requires between 25 and 30 percent more investment than the sowing of soy”.

Cresud is an agricultural company since its inception. The relationship with the family led by Eduardo Elsztain began in 1994, when Elsztain himself, with his partners Marcos Marcelo Mindlin (now in Pampa Energía) and the Hungarian tycoon George Soros, took control of the firm.

From that income in the agricultural sector, Elsztain increased the stock of land in his portfolio until he is now the largest landowner in the Pampa Humid. In its last year, the company developed activities in 30 owned farms and 35 leased ones. Taking into consideration the number of farms in the four countries where it operates, Cresud reaches an empire of 622,000 has, where agriculture occupies almost 100,000 ha. In Argentina, it has more than 40,000 hectares for cropping with more than half of that surface in corn, that is to say, a size equivalent to the city of the Capital Federal, Buenos Aires.

For Cresud, maize is a double business, since the bulk of its production is transformed into a central location for other businesses, such as meat and dairy production. According to the latest balance sheet, estimated valuation results for its crops in progress increased 654.1 percent from $ 49 million in the fiscal year 2015 to $ 369 million in 2016, due to the increase of 722.4 percent in the corn crop.

Cresud is much more than just farms. The company brings together companies including IRSA, in the area of commercial offices, residential properties, and hotels. Cresud’s balance gained muscle last year after consolidating a stake in a diversified Israel-based holding company that Elsztain acquired in 2015. In its latest year, it recorded sales of $ 37,044 million, five times more than the year previous. And in the first six months of its balance sheet 2016/17 generated revenues of $ 39,617 million, more than all invoiced in the previous 12 months.

Comment: Although to an outsider looking in you might be forgiven for thinking the Argentine Agricultural sector is very efficient, when in reality, in comparison to its potential, it is very backward. Unlike the agricultural sectors of its competitors, it has still to consolidate a large number of small inefficient farms and farm businesses. It is a race against the clock but there lies the opportunities for investors.

Contact the Gateway to South America team to learn about the best investment opportunities in the region. The company is a benchmark for foreign investors wishing to invest in Argentina, Brazil, Chile, Paraguay, Peru, and Uruguay, providing expert advice on property acquisition and disposal.

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