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Ag Returns Take Hit
Wednesday, July 26, 2017 6:39AM CDT
By Todd Neeley
DTN Staff Reporter

OMAHA (DTN) -- Major agribusinesses have gone from being among the highest-returning investments for shareholders prior to 2012 to being among the lowest returners from 2012 to 2016 due to the downturn in the ag economy, according to a survey of 40 global agriculture companies released this week.

A new report from the Boston Consulting Group on the state of agribusiness, however, shows times are good for processed-protein companies, while those companies that find a way to navigate the near-term challenges in agriculture will come out on top.

Seven of the top 10 companies in terms of shareholder returns are in processed proteins, while the remaining three are a fertilizer producer, an agriculture equipment company and a processed crop producer. Three of the top 10 are U.S. companies.

According to "Sowing the Seeds of Recovery, The 2017 Agribusiness Value Creators Report," agribusinesses went from being the top investment for shareholders among industry groups surveyed to near the bottom.

The average annual shareholder return between 2012 and 2016 for those businesses surveyed was about 7%, lower than all but two other industry groups surveyed.

"This performance is a 180-degree turnaround compared with 2007 through 2011, when the agribusiness industry's TSR was higher than that of every other industry surveyed," the report said. TSR is the annual percentage return to owners, which comes from capital gains plus dividends.

Although commodity prices show no signs of rebound in the near term, the report said agribusinesses have an opportunity for growth.

"Notwithstanding the agribusiness industry's ongoing challenge, several long-run demand trends including population growth, higher per capita calorie consumption, and the increasing use of crops in biofuel, will continue to support opportunities for value creation over the long term," the report said.

"The question is which companies will weather the near-term challenges, navigate through a crowded field of yield-enhancing technologies, and emerge as the strongest competitors. We believe it will be those that place farmers' economics at the center of decision making."


The survey showed fertilizer producers have taken the biggest hit as a result. Those companies led the survey in terms of shareholder returns from 2007 to 2011, but in the latest survey reported negative returns.

Despite the hits to agribusinesses during the commodity price declines, the survey said, agriculture companies appear ready for a rebound.

"An increase in valuation multiples across industry subgroups reflects the market's expectation that a cyclical recovery of commodity prices will boost performance over the long term," the report said.

The top 10 companies and their average shareholder returns include: Marine Harvest, Norway, 46.6%; PhosAgro, Russia, 35.3%; NH Foods, Japan, 29.2%; Glanbia, Ireland, 29%; Tyson Foods, United States, 25.8%; Kubota, Japan, 23.3%; Ingredion, U.S., 21.3%; Dean Foods, U.S., 17.1%; JBS, Brazil, 15.2%; China Mengniu Dairy, 13.7%.

BCG surveys what it calls 40 pure-play public agribusiness companies that generate most of their revenue from the direct production of agriculture inputs and outputs, with market capitalizations from $1 billion to $40 billion.

The survey does not include state-owned enterprises, private companies such as Cargill, J.R. Simplot and Koch Industries, or diversified companies such as DuPont, Dow Chemical, BASF and Bayer. The survey also does not include cooperatives such as Land O'Lakes or companies such as Hormel.

"For many agribusinesses, depressed prices for agricultural commodities have been the main factor impeding value creation," the report said.

"Corn prices, for example, have fallen by more than 50% since 2012. In the United States, the collapse of commodity prices has driven down net farm income to less than half of the peak reached in 2013. The resulting pressure on farmers' economics has reduced margins for farm inputs, such as seeds and equipment."


The BCG report took a look at the effects of mergers and acquisitions, finding the "combined deal value of mergers pending approval in 2017 is more than that of all mergers completed during the previous 10 years."

The report said that merger and acquisition activity hit a record high in 2011 with $14 billion in total transactions completed in agribusiness. From 2012 to 2016, however, the average annual transactions were about $7 billion.

A number of megadeals remain in the works in 2017, potentially valued at more than $200 billion, including Dow and DuPont, Bayer and Monsanto, ChemChina and Syngenta, and PotashCorp and Agrium.

"Although three of the 'big ag' players involved in pending deals -- Bayer, Dow and DuPont -- were excluded from our sample owing to their diversified businesses, it is important to understand what is motivating the industry's largest players to join forces," the report said.

"Big ag players have not escaped the effects of farmers' constrained economics. Farmers' prices sensitivity has driven down revenues and margins, while R&D productivity has declined and R&D costs steadily increased. Faced with these challenges, the large players are combining in order to achieve a variety of objectives."

The BCG report said if all the pending mergers and acquisitions are completed, the new companies will control about 70% of the global pesticide market, more than 60% of commercial seed sales and about 80% of the U.S. corn seed market.

"The outcome of the regulatory process will dictate how the broader market is affected," the report said.

"Given the requirement for divestitures, other large players (such as BASF) will have an opportunity to create value by acquiring strategic assets."

The report points to FMC Corp.'s market value, which soared by more than $1 billion on the day the company announced an acquisition of a portion of DuPont's crop protection business.

For more details on the report, visit…

Todd Neeley can be reached at

Follow him Twitter @toddneeleyDTN


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