Get Your Ag Game On

My, my… where to begin?

A report came out this morning suggesting that U.S. farm exports could increase by as much as 26 percent this year, as groups like Bunge try to meet absurd demand from China. It’s looking to be a rough crop season, so I’m not sure how they’re figuring on this, but then the U.S. typically has a massive crop surplus (we give the shit away, in a normal year), so maybe the exceptional moisture and late planting cycle won’t impede the money making noticeably?

Coming off of three spectacular quarters leaving them flush with cash and coupled with this environment, BG announced they would increase their dividend by 8.7%, bringing it up to one quarter a share.

And what to do with the rest of their money, unless they just leave it sitting in foreign accounts around the world? Well, BG also announced that they’re dropping another $350 million in operations, most of which will go straight to their newly expanded sugar operation in Brazil. They intend, in addition to simple replanting of fields, to expand business by 300,000 hectares.

Sugar cane is, of course, what the Brazilian government is using to create bio-fuel. What is the possibility, I wonder, the company is fully aware that their entire new crop yield is going to be acquired for just that purpose? Can you say near ensured profits? Couple that with restructuring occurring in Australia by a major sugar outfit, and it looks promising that BG will get full compensation for its harvest.

Meanwhile, predictions that agricultural companies like BG or ADM will get crippled by increasing grain prices will continue to come up short. ADM’s CFO said it best last Wednesday, I think:

High grain prices don’t benefit everyone evenly. Archer Daniels Midland Co., for example, buys a lot of grain and soybeans to make processed food ingredients. When crop prices jump, it can squeeze that company’s profit margins.

But Archer Daniels Midland Chief Financial Officer Ray Young said agribusiness conglomerates can even out the volatility by playing both sides of the market. Companies like Archer Daniels Midland or Bunge Limited both buy and sell grain, so they can offset losses in one division with gains in another.

“Our businesses are interconnected,” Young said. “We manage risk on an enterprise basis, rather than a segment basis.”

And how they have. BG, for instance, it appears idled a German oilseed mill until August, just so that they could avoid losses from un-purchased (and relatively expensive) inventories.

So how long are prices of grain going to continue upward? The same article had this to say, and I have no reason to doubt it, looking at the global shortages:

Presenters made clear that while global food prices might be unpredictable from day to day, they are headed in one general direction: Upward.

“We’re seeing strength in the commodity sector across the board,” David Honeyfield, president and chief financial officer of fertilizer maker Intrepid Potash Inc., said in comments at the BMO Capital Markets 2011 Farm to Market Conference in New York.

The higher grain prices mean farmers will be able to pay for more expensive inputs like potash or other fertilizers, Honeyfield said. And prices aren’t likely to fall anytime soon. That’s because global surplus levels of major crops like corn, soybeans and wheat are at historic lows. When backup supplies are so thin, crop prices can jump on even small supply disruptions.

It could take years to bring surpluses to normal levels, Honeyfield said.

“It takes two or three really good growing seasons to make a dent,” Honeyfield said.

Watch as the underperforming large scale operations like ADM and BG continue to defy expectations, much to the detriment of those who sell out early.

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