PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 15:13 UK, 15th Aug 2012, by Agrimoney.com
Soros-backed Adecoagro sells farm at 14 times cost

Brazil-based farm operator Adecoagro, in which billionaire George Soros's investment group is the top shareholder, showed the gains to be made from South American farmland by selling a site for 14 times what it paid for it a decade before.

Adecoagro, which owns nearly 300,000 hectares of land in Argentina, Brazil and Uruguay, said it had sold its San Jose site for $1,212 per hectare, compared with a purchase price of $85 per hectare in 2002.

The gain reflected, besides the buoyant South American land market highlighted by peer SLC Agricola last week, the development of the site, in Sante Fe, Argentina, from a solely ranching operation to a mixed farm.

"Agecoagro implemented a sustainable production model that allowed it to grow row crops over 6% of the farm and to increase the productivity of the pastures used for cattle grazing," the group said.

Look through to rest of portfolio?

While failing to reveal the cost of development, it said that the sale price of $9.25m for the farm represented an internal rate of return of 31.8%, and booked an operating profit of $7.96m from the deal.

The price was also 31% higher than the valuation of the farm by Cushman & Wakefield in an appraisal last September, raising questions over the potential uplift to the rest of Agecoagro portfolio.

"This farm sale reflects Adecoagro's ability to monetise gains generated by land transformation and commodity appreciation, as well as its focus on maximising return on invested capital," the group said.

The deal took to $111.5m its gains from the sale of 10 farms, totalling 37,000 hectares, since 2006.

'Numerous complications and disruptions'

However, the profit on the sale failed to prevent the group falling to a $14.9m loss in the April-to-June quarter, from earnings of $12.7m the year before.

The decline reflected largely losses related to changes in foreign exchange rates, as depreciation in the Argentine peso and Brazilian real swelled the value in local terms of dollar-denominated debt.

But Adecoagro also revealed that its sugar operations had fallen foul the sodden conditions in Brazil's Centre South region "which generated numerous complications and disruptions of harvest activities", and have also been flagged for performance declines at the likes of Bunge and Noble.

The cane crush at its two mills sank 40% during the quarter, prompting a 42% drop to $54.2m in sales of the sugar and ethanol produced from cane, and energy derived from waste.

The company echoed Noble, the Singapore-based commodities group, in saying that it expected its Brazil Centre South cane harvest to extend into December.

Drought damage

Adecoagro's dairy operations, squeezed by lower milk prices and elevated feed costs, fell into the red, although the group said it expected a return to profit at the earnings, before, interest, tax, depreciation and amortisation (ebitda) level in the second half of 2012 as production receives a seasonal spring boost.

The group's main cropping division saw ebitda tumble 35%, thanks to "lower-than -expected crop yields as a result of the summer drought" which affected much of Brazil and Argentina, and was attributed to the La Nina weather pattern.

However, in coffee the group sidestepped wet weather which has affected many other producers to achieve "higher yields and a faster harvest pace", and raise divisional ebitda by 9.6% to $4.88m.

Adecoagro shares fell 1.3% to $10.66 in morning deals in New York, valuing the 21% stake owned by George Soros's Soros Fund Management at $270m.

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