December 4, 2008
Australia's PrimeAg stores grain to wait for higher prices
Farming group PrimeAg has decided to store grain in its silos, convinced that prices will turn higher in the new year.
The group, which listed on the Australian stock exchange 11 months ago, is one of the Australia's largest wheat growers.
Hedge-fund selling to unwind leveraged positions has deepened the gloom in commodity markets, in stark contrast with a year ago when hedge funds drove commodity prices toward record highs.
PrimeAg Chief Executive John Stewart said in an interview on Tuesday (Dec 2, 2008) that prices were likely to improve next year once hedge funds had exited and bumper northern hemisphere crops had found markets.
Wheat prices have fallen more than 60 percent from record highs above US$13 a bushel struck in February to 18-month lows of just above US$5 a bushel.
PrimeAg, which was listed on the Australian stock exchange a year ago, owns 43 cropping properties in key grain-growing regions of eastern Australia, stretching from New South Wales into Queensland.
Its harvesters are back in the fields after being delayed by rain, harvesting the last of what is expected to be a wheat crop for PrimeAg of about 55,000 tonnes.
PrimeAg also grows other crops, including sorghum, giving it annual production of around 100,000 tonnes of grain.
Stewart said PrimeAg focused on developing a series of farming hubs in areas less prone to drought or where irrigation water was available, in expectation of rising global food demand.
The fundamentals are sound, there's food demand, there's biofuel demand when prices fall and there's feed demand. The Australian feedlot industry is a big consumer of grain but it's only running at 50 percent of its capacity, Stewart added.
Stewart said a wet harvest meant much of this year's Australian wheat crop would be downgraded to stockfeed quality.
Despite what Stewart described as a "roller coaster" year, he said PrimeAg has remained as a sound investment proposition, noting that its shares had narrowly outperformed the wider market.
Since January 1 2008, the Australian stock exchange's All Ordinaries index dropped by 46 percent while PrimeAg fell by only 41 percent.
PrimeAg raised A$300 million (US$194 million) by selling shares at A$2.00 each before being on Christmas Eve, 2007.
US$1 = A$1.545 (Dec 4)