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The price of palm oil, down 67 percent from its March record, is nearing the end of its decline, according to Goldman Sachs. However, despite decreasing supplies and the fact that, per one analyst, “edible oil demand has remained relatively resilient even during severe recessions,” Goldman cut its price forecast for palm oil for the next two years by between 41 percent and 50 percent, joining analysts at CLSA Asia Pacific-Markets and UBS AG.

Malaysia (home to growers such as IOI Corp., Sime Darby Bhd. and Kuala Lumpur Kepong Bhd.) and Indonesia are the world’s largest producers of palm oil, which is also their biggest agricultural export. The two are felling oil palms and planting younger saplings in order to cut output. Goldman noted that historically, the price of the edible oil has been mainly driven by supply. Replanting will thus help reduce output, while the yield from plantations is under “stress”.

Back on March 4th, palm oil reached a record 4,486 ringgit ($1,236) a metric ton in Malaysia. But CLSA analysts predict that it will probably only bring 1,000 ringgit a ton in 2009, and 1,250 ringgit in 2010.

The planet is facing a topsoil crisis, meaning that the greatest commodity of them all one day could be farmland. That potentially makes Cresud Inc. (NASDAQ: CRESY), which owns large swathes of farmland in Argentina and also has a growing presence in both Paraguay and Brazil, a sound long for punters. Additionally, the firm is currently involved in a variety of other projects including crop production, cattle raising and milk production, not to mention real estate accumulation (several shopping centers in Buenos Aires, for instance). In fact, while it is estimated that the firm owns about a million acres of farmland and 50,000 head of cattle, Guy Bennett of Q1 Publishing, an investment research firm, mentioned that Cresud’s executives consider themselves to be primarily a real estate development company. But all this diversity may not necessarily be a positive. Per one commentator:

“A significant component of Cresud’s net asset value lies in its stake in IRSA, owner of commercial real estate in Argentina and stakes in a few other affiliated real estate companies. IRSA has a lot of debt which poses a risk of a dilutive debt refinancing or potentially even bankruptcy, either of which would erase a significant portion of Cresud’s NAV. If Cresud were only a farmland owner, it would be much more attractive.”

On Thursday, the expansion of operations continued. The company reported to the Argentine Comision Nacional de Valores and to the Buenos Aires Stock Exchange that it agreed the purchase of approximately 7,600 ha of farmland in Bolivia at USD 17,501,359.99. The company has paid 43% of total amount while the rest remain to be paid in two annual consecutive payments, the first one to be paid during calendar year 2009. These transactions were made according to what was stipulated in the Company plans made public upon the Equity Follow on of last March, regarding international expansion.

One way to think about Cresud could simply be the Asia factor. The company produces many of the food staples that China, for example, will need more and more of as income per head rises. Corn, soybeans, sunflower (oil), and beef are some of the firm’s major products. Of course, there’s always that pesky problem of export taxes, but if you listen to insiders, a more business friendly government could be in store for the country in the coming years.

Prince Alwaleed bin Talal hopes it’s the former after he boosted his Citigroup stake to 5% on Thursday. Remember that back in 1991 the Prince pulled a similar coup with the firm’s predecessor, one of many shrewd plays that helped him rise to 19th on Forbes’ billionaire list–one way to stand out from the other 2,000 or so Saudi princes. For the time being, however, things look bleak for Citigroup. The announcement failed to halt the stock’s slide, and shares slumped just over 26 percent to close at $4.71 in New York trading.

Wealth managers speaking in London two weeks ago at the Euromoney Conference on Nigeria jointly sponsored by African Alliance, an equity investment company, predicted that the capitalization of the Nigerian Stock Exchange–which currently sits between $60 billion and $70 billion–will quickly rise to $100 billion once the current global financial crisis subsides.  Said investors, citing the strength of the local currency, are also encouraging the country’s federal government to introduce a global dollar bond to the international financial market, which would enable Nigeria to fund infrastructure projects, among other opportunities.  BusinessDay reported that “investors appeared buoyed by the belief that the domestic currency will continue to be strong in spite of the continuous decline in global oil prices.  Francis Beddington, head of research at Insparo Asset Management, said: ‘The naira is not likely to be down, even if the price of oil stays at $30-$40 for a long time, which I expect it to do.'”

From yesterday’s Financial Times:

Labour unions are braced for job losses and forecasts for future orders are bleak.  Across much of sub-Saharan Africa, the story is the same. The region’s mineral resources have fuelled its recent growth, analysts at Absa Capital wrote. They now foresee depreciating currencies, widening deficits and evaporating mining investment in at least 11 countries. Mozambique’s fortunes are inextricably linked to its bauxite seams, as are Namibia’s to its diamond fields. Each relies on commodities for two-thirds of their exports.

Last month Peter Bartlett’s Exotix Limited secured financing for UK-based New Forests Company’s sustainable forestry operation in Uganda.  The New Forests Company is a plantation timber firm with operations in Uganda and Mozambique.  It has become the largest tree planter in Uganda and expects to plant almost 4.5 million trees this year. The company combines sustainable commercial forestry and the protection and promotion of biodiversity with community participation.  Commenting on the deal, Exotix’s Sanjeev Chhugani said, “Early stage forestry businesses have low cash flows in the initial years, but once the trees reach a certain age, the picture changes dramatically. Not only do the assets literally grow, so does the holding value of these assets. With increasing global demand for timber, investing in sustainable forests is essential. New Forests’ impact on the surrounding communities will be phenomenal. While many of our alternative investment clients are focused on assets that can be marked to market on a short term basis, we had to find a strong investor with a long term outlook, a passion for Africa and a pragmatic approach to ‘green’ investments. Money can grow on trees.”

Julian Ozanne, CEO of New Forests, commented that “with our institutional round of funding concluded, we can focus on planting more trees and extending our biodiversity and community development initiatives. We have a solid team of very experienced and passionate people who are extremely knowledgeable about forestry and are committed to successfully and profitably expanding our operation within Uganda and across Africa.”

From Standard & Poor’s “The Outlook”:

The MSCI-EAFE index, a developed international equity benchmark, is now moving in unison with the S&P 500 index 89% of the time, up from 80% on August 31. Similarly, the MSCI Emerging Markets index’s correlation to the 500 has jumped to 81% from only 68% two months ago. Worse yet, the MSCI Frontier Market index, long touted for its ability to ‘zig’ when the 500 ‘zags,’ has seen its 500 correlation surge to 63 percent from a mere 9 percent on August 31.”

An interesting piece from The New York Times last month touches upon a theme explored a few months ago. Namely, Montenegro, and specifically its Adriatic coastal towns (e.g., Tivat, Budva), is becoming the next Monaco. Montenegro receives more foreign investment per capita than any other country on the Continent, and it’s mostly thanks to wealthy Russians. Needless to say, the country’s tax base and development is also improving. The price of land in Budva, for example, where Russians are building a $310 million hotel and condominium complex on a rocky peninsula, is already more expensive than in the French-speaking tax haven. And huge investments have also been made in the country’s industrial sector.

Moreover, the Russian Bear also has its paws extended nearby:

In neighboring Serbia, Gazprom, the Russian state energy monopoly, recently bought a majority stake in the national energy company, Petroleum Industry of Serbia, for $520 million and agreed to invest another $650 million by 2012. The deal will give Gazprom a dominant position in Serbia’s energy market while transforming Serbia into a gateway for the transportation of Russian gas into western Europe.

Some pundits scoff at Russian presence as little more than cynical, geopolitical motivated maneuvering.  What better way to temper the two nations’ EU and NATO desires?  That said, aiding their economic development may only accelerate their readiness to join. Still, if the name of the game is energy dependence, then the Kremlin may already have the upper hand, at least in Serbia:

In a recently announced energy deal, Gazprom agreed to make Serbia a transit country for its South Stream pipeline, a $14 billion project that will stretch 560 miles undersea from Russia to Europe. The project — which Gazprom insists will forge ahead despite the global financial crisis — is a direct challenge to Nabucco, a pipeline championed by the United States and the European Union to bring natural gas to Europe via Central Asia, offsetting energy dependence on Russia.

That said, all is not so rosy. The Montenegro Times reported last month that Oleg Deripaska, “the politically connected Russian metals tycoon” and the country’s “richest man on paper” who bought majority control of the debt-ridden Kombinat Aluminijuma Podgorica (KAP) and its associated bauxite mines for €48.5m in late 2005, was frantically looking to secure more than $2b in financing to repay part of a $4.5b loan to western banks before the end of the month, or risk losing to creditors a 25% stake in the world’s biggest nickel miner. It is speculated that the income of almost one in 10 of Montenegro’s estimated 680,000 population is tied to the company and its subsidiaries. Alas, Deripaska found his honey pot at the last minute in the form of a $4.5b loan from Russia’s central bank funds. KAP describes itself as is the “industrial powerhouse of Montenegro, representing 51% of the country’s exports.” Owned by Deripaska’s CEAC (it has a has a 58.73% stake in the company), it says it has no plans to cease all aluminium production at the plant. However, in response to current metal prices and cost pressures, it is reported that CEAC will gradually reduce output by up to 10%. Moreover, most mining stocks have incredibly low P/E ratios and very high yields. However, if metal prices continue trending downwards, earnings will decline sharply and companies like KAP will be forced to slash its dividend payments. So far at least, and as The Guardian reported, [Deripaska’s] alumnium plant is “turning out to be a money pit.”

Got an hour? “Frontier Markets” was the topic at hand this past September during the World Economic Forum’s “Annual Meeting of the New Champions” in Tianjin, People’s Republic of China.

The Youtube clip features Muhammad Lutfi, Chairman, Investment Coordinating Board (BKPM), Indonesia; Harish Manwani, President, Asia, Africa, Central and Eastern Europe, Unilever, United Kingdom; Essa Al Saleh, President and Chief Executive Officer, Global Integrated Logistics, Agility, Kuwait; Wang Jianzhou, Chairman and Chief Executive, China Mobile Communications Corporation, People’s Republic of China. It is moderated by Andrew Stevens, Anchor and Correspondent, CNN, Hong Kong SAR.

Per Bloomberg, “shares in the country of 22.5 million, sandwiched between Togo and Ivory Coast, has gained 31 percent in 2008 in dollars.”

The index is one of only three tracked by Bloomberg globally that has advanced this year in dollar terms.


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November 2008
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