Agriculture Industry Flash Monday, April 20th, 2015

COMMODITY HANDLING 

News Scan



The Canadian Wheat Board has sold a majority stake to G3 Global Grain Group. The G3 Group, made up of Bunge Canada and SALIC (Saudi Agricultural and Livestock Investment Company) Canada, will own 50.1% of the company in exchange for $250 million. The 49.9% of the organization that was not purchased will be kept in trust for the farmers who supply the board with their production



Cargill reported a 33% jump in third-quarter profit to $425 million, helped by strong performance in its meat and animal nutrition business. Specifically, it gained from higher sales in its Australian beef processing, central American poultry and U.S. pork and turkey processing businesses



West Central Road and Rail Ltd. (WCRR) and its subsidiary Goals Marketing announced plans to sell their assets to Alliance Pulse Processors Ltd, a subsidiary of AGT Food and Ingredients, for approximately $22 million. The agreement includes WCRR’s 5 producer car loading facilities in east central Saskatchewan, as well as most other assets related to storing, receiving loading and merchandising of grains, pulses, oilseeds and special crops. The deal is subject to shareholder approval. A shareholder meeting is planned for late May

Relative Performance Index 120%

110%

YoY Change S&P/TSX Commodity Handling Index

S&P/TSX Composite

Commodity Handling Index¹

6.2 % 2.8 %

100%

90% 21-Apr-14

21-Jun-14

21-Aug-14

21-Oct-14

21-Dec-14

21-Feb-15

Key Indicators Market Cap

TEV

LTM

TEV/EBITDA 2015E 2016E

Price/Earnings 2015E 2016E

Week Δ Price

Δ Price 52Wk High

ADM

30,623

35,130

7.8x

7.7x

7.4x

14.5x

13.4x

0.7 %

(10.4)%

Bunge Limited

12,448

16,138

9.4x

7.4x

7.3x

13.5x

12.6x

0.9 %

(8.2)%

Graincorp Limited

1,662

2,233

12.9x

12.9x

10.0x

30.4x

18.5x

0.4 %

(6.5)%

The Andersons, Inc

(38.4)%

1,240

1,562

5.1x

6.3x

5.7x

15.2x

12.9x

7.8 %

AGT Food and Ingredients

513

765

12.1x

12.2x

10.5x

16.2x

12.9x

(1.0)%

(9.8)%

Legumex Walker Inc. Ceres Global Ag

64 130

237 168

25.6x 26.6x

9.6x na

9.2x na

neg na

19.4x na

4.8 % 2.0 %

(24.0)% (16.9)%

14.2x

9.3x

8.4x

18.0x

15.0x

2.2 %

(16.3)%

Mean

1 “Commodity Handling Index” is composed of equally weighted market prices for: ADM, Bunge, Graincorp, The Andersons, Legumex Walker, AGT, and Ceres

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FOOD PROCESSING News Scan 

Nestle announced that it is in exclusive talks to sell its frozen food unit Davigel to Brakes Group, which is owned by Bain Capital. Davigel, based in France, manufactures and distributes meat products and ready meals. Nestle said the sale is part of its previously announced initiative to dispose of some food brands in order to streamline its portfolio. In the wake of the Kraft-Heinz merger and the merger of Mondelēz-Douwe Egberts, Nestle intends to “accelerate its policy of adjusting its portfolio activities” and “making better use of its size” in order to maintain its position as the undisputed industry leader. Financial details of the transaction have not been disclosed and the transaction is subject to approval from the European competition authorities



Private Equity firm Permira has agreed to sell Iglo Foods Holdings, Europe’s largest frozen foods business and the parent company of Birds Eye brands, for €2.6 billion (C$3.2 billion) to Nomad Holdings. Nomad Holdings Limited is a publicly-listed acquisition company that was formed in April 2014 to create a global consumer brands company

Relative Performance Index 130%

120%

S&P/TSX Composite

YoY Change S&P/TSX Food Processing Index

Food Processing Index¹

6.2 % 22.2 %

110%

100%

90% 21-Apr-14

21-Jun-14

21-Aug-14

21-Oct-14

21-Dec-14

21-Feb-15

Key Indicators Market Cap George Weston Limited ConAgra Foods, Inc. Ingredion Incorporated Tate & Lyle plc Nutreco N.V. Maple Leaf Foods Inc. SunOpta Inc. Ridley Inc. Mean

10,628 15,929 5,594 4,857 3,897 2,616 729 345

TEV/EBITDA 2015E 2016E

TEV

LTM

25,463 24,278 6,929 5,614 4,440 2,227 846 346

12.7x 20.3x 8.6x 7.9x 13.9x neg 19.7x 9.4x

8.4x 11.8x 8.1x 9.1x 10.9x 10.2x 10.9x na

13.3x

10.2x

Price/Earnings 2015E 2016E

Week Δ Price

Δ Price 52Wk High

7.7x 11.9x 7.7x 8.7x 10.4x 6.5x 8.8x na

17.9x 16.5x 14.0x 16.6x 18.7x 28.1x 30.6x na

14.9x 15.9x 12.6x 15.5x 17.3x 19.8x 23.0x na

(2.6)% (0.8)% 0.0 % (0.1)% 3.9 % (0.7)% (4.1)% 1.4 %

(2.9)% (2.9)% (10.3)% (12.3)% (12.1)% (3.7)% (17.0)% (2.5)%

9.0x

20.7x

17.3x

0.5 %

(8.3)%

1 “Food Processing Index” is composed of equally weighted market prices for: George Weston, ConAgra, Ingredion, Nutreco, Tate&Lyle, Maple Leaf Foods, SunOpta and Ridley.

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FERTILIZERS & CROP INPUTS News Scan 

Russia’s Uralkali, the world's biggest potash producer, has agreed to supply 850,000 tonnes of potash at $315 per tonne on a cost and freight basis in 2015 to China, the world's largest consumer of the crop nutrient. The company said in a statement, the price is equal to the price agreed to by Belarus and China in March, which set a benchmark for other producers. Uralkali's main rival Canpotex Ltd signed a contract with China in late March, but did not release price terms



Due to the worsening security outlook in Libya, Yara predicts further deterioration in 2015 of the operating ability of its Lifeco joint venture plants. Given an already challenging feedstock and financial situation for the joint venture, Yara has written down the value of its Lifeco investment by US$112 million, leaving a remaining book value of US$18 million. Yara’s Lifeco fertilizer J.V. with the national oil and investment companies of Libya is located at Marsa El Brega on the Mediterranean coast, about 700 kilometers east of the Libyan capital of Tripoli

YoY Change S&P/TSX 1.6 % Fertilizer & Crop Inputs Index 18.1 %

Relative Performance Index S&P/TSX Composite

Fertilizer & Crop Inputs Index¹

135% 125% 115%

YoY Change S&P/TSX 6.2 % Fertilizer & Crop Inputs Index 22.2 %

105% 95% 85% 21-Apr-14

21-Jun-14

21-Aug-14

21-Oct-14

21-Dec-14

21-Feb-15

Key Indicators Market

Potash Corp. Agrium Inc. Yara International ASA The Mosaic Company CF Industries Holdings, Inc. Nufarm Ltd. Input Capital Corp. Mean

Week Δ

Δ Price

Cap

TEV

LTM

TEV/EBITDA 2015E

2016E

2015E

Price/Earnings 2016E

Price

52Wk High

27,472 18,695 19,269 16,580 13,952 1,704 189

30,704 23,137 22,029 18,055 16,911 2,940 144

11.7x 13.2x 9.0x 8.3x 5.8x 11.4x nmf

10.8x 9.7x 5.4x 6.8x 7.0x 8.1x 13.6x

10.3x 8.7x 5.5x 6.3x 6.1x 7.3x 5.1x

19.6x 16.8x 10.9x 13.3x 13.0x 14.5x 40.0x

18.1x 14.6x 11.0x 11.9x 11.1x 12.4x 23.9x

(3.5)% (3.2)% (6.0)% (1.2)% 2.4 % (5.5)% (2.4)%

(15.1)% (11.2)% (6.4)% (15.8)% (7.4)% (18.3)% (15.9)%

9.9x

8.8x

7.1x

18.3x

14.7x

(2.8)%

(12.9)%

1 “Fertilizers and Crop Inputs Index” is composed of equally weighted market prices for: Potash, Mosaic, Agrium, Yara, CF Industries , Nufarm and Input Capital

4

BIOFUEL PRODUCERS News Scan 

Cosan Ltd. is looking for opportunities to invest in the country's energy and infrastructure sectors, Chief Financial Officer Marcelo Martins said last week. An economic downturn and rising borrowing costs in Brazil have forced Cosan to build up cash, which now allows it to consider more investments in those industries, Martins said

Relative Performance Index S&P/TSX Composite

150%

Biofuels Index¹

130%

110% 90% 70%

50% 21-Apr-14

YoY Change: S&P/TSX Biofuels Index

6.2 % (15.1)%

21-Jun-14

21-Aug-14

21-Oct-14

21-Dec-14

21-Feb-15

Key Indicators Market

Cosan Ltd. Pacific Ethanol, Inc. BIOX Corporation Mean

TEV/EBITDA

Price/Earnings

Week Δ

Δ Price

Cap

TEV

LTM

2015E

2016E

2015E

2016E

Price

52Wk High

2,766 299 18

10,450 282 22

11.3x 4.9x neg

4.8x na 17.5x

5.4x na 17.0x

18.0x 2.8x na

10.1x 6.3x na

27.3 % 3.2 % (9.4)%

(12.5)% (49.4)% (65.9)%

8.1x

11.2x

11.2x

10.4x

8.2x

7.0 %

(42.6)%

1 “Biofuels Index” is composed of equally weighted market prices for: Cosan Ltd., Pacific Ethanol, and BIOX

5

EQUIPMENT MANUFACTURERS News Scan 

Titan Machinery reported a fiscal 2015 net loss of $31.6 million, or $1.51 per diluted share, compared to net income of $8.7 million, or $0.41 per diluted share, for fiscal 2014. To better align its business in certain markets, the company has reduced its headcount by approximately 14% and has closed three Agriculture stores and one Construction store. CEO David Meyer stated, “Our financial performance for the fourth quarter and full year fiscal 2015 was impacted by ongoing headwinds in the agriculture industry. Throughout the year we focused on managing the controllable aspects of our business and reduced equipment inventory by $168 million, which enabled us to significantly improve our adjusted cash flow from operations.”

Relative Performance Index 115%

S&P/TSX Composite

Equip. Manuf. Index¹

110% 105%

100% 95%

YoY Change 90%

S&P/TSX

6.2 %

Equip. Manuf. Index

2.9 %

85% 21-Apr-14

21-Jun-14

21-Aug-14

21-Oct-14

21-Dec-14

21-Feb-15

Key Indicators TEV/EBITDA

Deere & Company AGCO Corp Ag Growth International Inc. Cervus Equipment Corporation Vicwest Inc. Mean

Market Cap 29,963 4,252 540 235 178

TEV 63,601 5,028 652 490 267

LTM 13.5x 5.0x 11.9x 8.1x 14.9x 10.7x

2015E 17.5x 6.7x 8.2x 5.8x 6.2x 8.9x

Price/Earnings 2016E 17.0x 6.5x 7.0x 5.4x 5.4x 8.2x

2015E 17.1x 16.6x 15.9x 12.5x 11.5x 14.7x

2016E 17.0x 16.1x 12.9x 10.5x 8.6x 13.0x

Week Δ Price (1.8)% 3.6 % 2.9 % (0.1)% (0.2)% 0.9 %

1 “Equip. Manuf. Index” is composed of equally weighted market prices for: Deere & Co., AGCO, Ag Growth International, Cervus and Vicwest.

6

Δ Price 52Wk High (7.8)% (16.5)% (10.7)% (17.0)% (1.1)% (10.6)%

AGRICULTURE COMMODITIES UPDATE General News 

Saskatchewan’s move to prevent purchases of farmland by pension plans and foreign investors has ignited a debate over what’s best for the future of Canada’s bread basket. The province has launched a public consultation to clarify the existing Farm Security Act. The government says controversy erupted in 2013 after the Canada Pension Plan Investment Board paid $128-million for 115,000 acres of land growing wheat, barley and canola. The pension fund sought required approvals and discussed plans to use this as a platform for further investments, however, farmers, particularly in rural Saskatchewan, took issue. Currently, CPPIB is optimistic its own investments will be allowed after the consultation, given its long-term investment plans and Canadian leadership



A report prepared for Canada’s cereal grains industry suggests the country’s competitive position in global wheat markets could suffer unless it takes steps to co-ordinate research efforts. The White Paper on Research Innovation in Cereals was commissioned by Cereals Canada. The 45-page report suggests that Canada may be “slipping behind other countries” in cereal innovation and that it should adopt “a world-class science and innovation model” for cereals to ensure that it remains competitive with other major wheat producing and exporting nations



Canadian National Railway plans to spend $500 million over several years improving track on its western Canadian feeder rail lines. The money will be spent on lines in Alberta, Manitoba, and Saskatchewan that handle rising volumes of industrial products, natural resources and energy-related commodities



The USDA reported that the number of organic producers is at an all-time high. There are now more than 19,400 certified organic operators in the U.S., having increased at least 5% since 2014

Commodities Futures as of April 20th, 2015 Commodities Futures

Ticker

Price Unit

Latest Price (US$)

Month to Date

Corn (CBOT)

CBOT:^C

$ per bu.

$3.86

1.31 %

(2.68)%

Wheat (CBOT)

CBOT:^W

$ per bu.

$4.89

(7.41)%

(17.01)%

Oats (CBOT)

CBOT:^O

$ per bu.

$2.69

2.67 %

(11.33)%

Rough Rice (CBOT)

CBOT:^RR

$ per cwt.

$9.90

(8.12)%

(15.70)%

Barley (USDA)

ICE:^AB

$ per bu.

$6.35

(5.93)%

(13.61)%

Rapeseed (Canola) (ICE)

ICE:^RS

CAD per T

$451.20

(1.98)%

2.59 %

Ethanol (CBOT)

CBOT:^ET

$ per gal.

$1.62

2.86 %

3.66 %

7

Year to Date

In other news…  

Ohio is holding a state-wide contest to show that “Ag is Cool!”



Students will have until Friday, June 5th to create a piece that describes why they think Ohio agriculture is cool. Prizes for winning entries include tickets to the Ohio State Fair



The entries will be judged based on some of the following criteria:  Does it represent the “Ag is Cool!” theme?  Does it accurately reflect agriculture in the 21st century?  How are images of Ohio used creatively?

How cool is agriculture? That’s the question hoping to be answered by the creative minds of elementary and high school students in Ohio with the “Ag is Cool!” contest

Origin Merchant Partners 220 Bay Street, Suite 1500 P.O. Box 23 Toronto, Ontario M5J 2W4 OMP Agri-food Team:

Andrew Muirhead

Jim Osler

Rob Penteliuk

Sean McIntyre

Principal T: 416-800-0697

Principal T: 416-800-0784

Principal T: 416-800-1780

Principal T : 416-800-1753

[email protected]

[email protected]

[email protected]

[email protected]

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