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Agriculture – a structural story
THEME
Figure 1: CRB foodstuffs and metals prices (in real terms)
0.0
1.0
2.0
3.0
4.0
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Jan-81 Jan-86 Jan-91 Jan-96 Jan-01 Jan-06
CRB foodstuffs price index CRB Metals price index
Source: CRB, Credit Suisse research
We first highlighted the imbalance in supply and demand for global agricultural
products, and specifically the prospect for rising prices, in our report ‘Higher
agricultural prices: Opportunities and risks’ (November 2007). Much of what we
said in this report is still relevant today and we are keen to revisit what we
believe is a structural bull story in the agricultural sector. The bottom line is that
we think agricultural prices are more likely to rise than fall.
While we recognise global demand for agricultural produce will likely suffer a
cyclical downturn this year (we expect a contraction of 1–2% in 2009) as both
food and biofuel demand falls, we believe the degree of the likely supply-side
contraction will outstrip this.
We calculate falling planted acreage, lower fertiliser application and adverse
weather conditions may drive a 3–4% fall in crop production over the next 12
months. This is in contrast to the optimistic view of supply held by the USDA.
We highlight 20 stocks within our global coverage that should ultimately benefit
from this ongoing theme: AGCO, BrasilAgro, Bunge, China Yurun, Deere,
Dupont, Illovo Sugar, Indofood Agri, Israel Chemicals, Kroger, London Sumatra,
Marfrig, Nissin Food Holdings, Perdigao, SLC Agricola, Syngenta, Taiwan
Fertilizer, Tesco, Wilmar, Yara International. (Credit Suisse offers a Delta One
basket based around this list.) We also remind readers of the barometer of this
theme provided by the Credit Suisse Agriculture Index (powered by HOLT).
Table of contents
Analyst contact list 2
Executive summary 4
Stock picks 6
Supply/demand balance in summary 7
Supply of agricultural products 9
Demand for agricultural products 22
The bottom-up picture 41
Appendix 1: Bio-fuel targets 63
Appendix 2: Credit Suisse Agriculture Index powered by HOLT 64
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