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Today, with some regret, I let go of one of the agricultural plays in my portfolio.

I wrote in a recent article about ‘…the increasing global demand for protein as living standards improve around the world…’. This prompted me to identify farmland as perhaps the purest investment opportunity to exploit this trend. Imagine my delight on discovering the most fertile farmland in the world coincided with some of the cheapest (productive) farmland globally. I highlighted the Black Earth region of Ukraine & Russia as one of the best farmland opportunities, and promised to write about it at a later date.

After extensive research, I identified a selection of agri-business stocks in the region and eventually homed in on a particular stock. However, I already owned Cresud (CRESY:US) at that point, and couldn’t choose between them in terms of risk and reward. Ultimately, I decided on a 4-5% portfolio allocation to pure farmland, split between these two stocks. But first, let me walk you through the stocks I researched. Many were unsuitable from my current perspective, but I wanted to cover them all as they may well stimulate your own interest and research.

The first 3 stocks are focused on Eastern European farmland. In light of their geographic focus, and the higher farmland valuations in this region, I didn’t investigate these any further:

FirstFarms (FFARMS:DC):  Romania & Slovakia – Cereals & Dairy

KTG Agrar (7KT:GR):  East Germany & Lithuania – Cereals

Agrowill (AVG1L:LH):  Lithuania – Cereals & Dairy

The next 9 stocks are listed on Polish/Russian stock exchanges, and/or have poor English language websites. Creativ was listed in Germany, but I can’t locate their ticker/listing any longer for some reason. These are a stretch too far for me at the moment..! As standards and transparency improve, I may revisit these stocks:

Razgulay Group (GRAZ:RM):  Russia – Cereals & Sugar

Agroton (AGT:PW):  Ukraine – Cereals, Oilseeds & Poultry

Kernel (KER:PW):  Ukraine – Cereals & Oilseeds

Astarta (AST:PW):  Ukraine – Sugar

Rusgrain (RUGR:RM, currently in a stock split process):  Russia – Cereals, Poultry & Eggs

KSG Agro (KSG:PW):  Ukraine – Cereals

Industrial Milk Co (IMC:PW):  Ukraine – Dairy & Cereals

Milkiland (MLK:PW):  Russia & Ukraine – Dairy

Creativ Group:  Ukraine – Oilseeds

The next 5 are a lot more interesting. Remember, if you’re analyzing land values in the regions, there’s a couple of things to note: In Russia, land will be in registered ownership, in the process of ownership registration or occasionally will be leased. Steady/improving progress has been made in completing the registration process, so it’s reasonable to treat land in this category as owned. Ukraine, on the other hand, does not permit foreign ownership, so farmland must be leased. Since most leases are longer-term, and/or with options to buy (upon any change in the law), I generally value leased land at a 50% discount to my owned land valuation.

When I evaluate these stocks based on a USD Market Cap/hectare, I come up with a range of values from $1,700 to $4,200 per hectare. At those kind of valuations, none of these stocks offer me enough potential upside from a pure farmland appreciation perspective. In my opinion, they’re better evaluated in terms of their current/potential earnings growth. I’ve drilled down on each of these companies, but ultimately set them aside as I already own a Ukrainian agribusiness on a similar basis. I’ll write about this holding at a later date. I’ll admit it’s giving me some heartburn these days, but its operational and earnings growth are exceptional:

Ros Agro (AGRO:LI):  Russia – Sugar & Pork

AgroGeneration (ALAGR:FP):  Ukraine – Cereals

Continental Farmers Group (CFGP:ID or LN):  Ukraine – Cereals

Mriya Agro (MAYA:GR):  Ukraine – Cereals & Sugar

MHP (MHPC:LI):  Ukraine – Poultry

The next 3 are in the same category, but they are even purer earnings/growth stories as they do not own any significant amounts of farmland:

Avangardco (AVGR:LI):  Ukraine – Eggs

Cherkizovo (CHE:LI):  Russia – Poultry, Meat Processing & Poultry

Ukrproduct (UKR:LN):  Ukraine – Dairy

Now we can finally home in on my Top 6 most undervalued farmland companies. I’ve listed them according to their level of undervaluation:

Landkom (LKI:LN):  Ukraine – Oilseeds & Cereals  [(0.5) years]

Alpcot Agro (ALPA:SS):  Russia (92%, but half is leased) & Ukraine (8%) – Cereals  [0.8 years]

Black Earth Farming (BEFSDB:SS):  Russia – Cereals  [0.7 years]

Trigon Agri (TAGR:SS):  Russia (2/3) & Ukraine (1/3) – Cereals  [2.5 years]

MCB Agricole (4GW1:GR):  Ukraine – Cereals & Oilseeds  [(0.5) years]

Sintal (SNPS:GR):  Ukraine – Cereals  [(1.4) years]

To be continued…