Jim Rogers Invests In Russia's Return To Agricultural Power, Joined Company Board

Jim Rogers, the former partner of George Soros (Trades, Portfolio) at his legendary Quantum Fund, is leveraging Russia’s agriculture renaissance as his next big investment.

Rogers, who frequently appears forecasting doom for major markets, has purchased at least three stakes in the superpower: airliner Aeroflot (MIC:AFLT), the publicly traded Moscow Exchange (MIC:MOEX) and the country's top fertilizer producer, PhosAgro (MIC:PHOR), where he joined the board of directors.

The investing activity of Rogers draws notice for his past record. In the first 10 years of the Quantum Fund, the portfolio returned 4,200%, while the S&P 500 increased nearly 50%. Today, he invests through his company, Rogers Holdings.

Rogers joined PhosAgros’ board on Sept. 14, 2014, offering some insight into his thinking in the announcement.

“PhosAgro is an excellent company that offers investors excellent value due to the high-quality fertilizers it produces, its vertical integration and low production costs. I have watched the company successfully develop as a global player over the last few years, with flexible sales and production models that have helped it reach new markets, while investments in its Russian production assets have enabled PhosAgro to expand and improve its product portfolio,” he said.

“While Russian stocks have been under pressure through most of 2014, I think that PhosAgro’s share performance, which is among the best for Russian companies in 2014, shows that investors understand the Company has world-class assets and holds significant potential for sustainable growth.”

Rogers’ move to join the board came as Russia implemented a ban on imports of agricultural products from the EU, which forced domestic producers to increase their output. Effects were seen in 2016, when food imports decreased by 6%, while exports increased by 5%.

Even more positive developments befell the agriculture industry since the ban. Mild winters, $3.3 billion in federal investments, easier lending and the rising need to supply feed to domestic husbandry to replace imports, have combined to produce what experts expect to be the biggest wheat harvest in its history, according to the USDA. Agricultural production grew by 5% in 2016 as Russia aims to become the leading agricultural power.

“Record wheat output in Russia combined with its price-competitiveness — Black Sea wheat is currently by far the cheapest in the world — is expected to propel Russia to become the world’s top wheat exporter this year at 30 million tons, unseating the European Union, which became the world leader in 2013/14. While this year’s developments are driven in part by a poor EU wheat harvest, Russia has been gaining wheat export share for several years, alongside the EU, its main competitor and the top exporter over the previous three years,” a USDA forecast from September 2016 said.

Harvest dominance marks a return to Russia’s glory days before millions of peasant farmers were enrolled into collective farms instated by Soviet dictator Josef Stalin from 1928 to 1933. Famine and starvation eventually drove millions of peasants off the land to cities.

Russia is now planning to reclaim land for agriculture use through legislation. In 2016, it passed a land-acquisition law that led to the withdrawal of 34,000 hectares of land from “unscrupulous owners,” twice as much as in 2015, Alexander Tkachev, minister of agriculture of the Russian Federation said at a meeting of the Board of the Ministry of Agriculture of Russia on April 7.

Tkachev said the land resources in Russia had “Inexhaustible potential,” suggesting the government could return 10 million hectares of vacant land to agriculture use,

The same climate change that has fostered a mild climate optimal to grain growth in Russia may also be a detriment, though. Some of the country’s prime wheat-growing regions may experience lower yields as precipitation is expected to fall more than 22% by 2020, according to the Climate Change Post. In 2010, a hotter than usual summer caused a drought that reduced the country’s grain harvests by 30%.

PhosAgro held its IPO in 2012, and has since grown its phosphate-based fertilizer production volume by 37% through 2016. It also achieved 50% growth in production and expects 20% additional growth through 2020, according to a shareholder presentation, as agriculture production in Russia picks up. Demand for fertilizer in Russia increased 16% 2016 from the previous year, accounting for 29% of sales, from 24% the previous year.

For 2016, PhosAgro’s revenue fell 1% from 2015 due to lower global fertilizer prices – the lowest since the 2009 financial crisis – and depreciation in the ruble, despite a 9% increase in fertilizer production and sales volumes. EPS increased 64% to $8.07, year over year. Operating cash flow declined by 20% to $751 million. The company paid 96 cents per global depository receipt in dividends for 2016, for a dividend yield of 6%.

The U.S. election propelled PhosAgro’s share price to near 52-week highs in November, but it has declined 6.7% year to date, to close at 2,425 rubles ($42.36) per share Friday.

In addition to Russia, Rogers told Reuters this week that he would also like to invest in North Korea but couldn’t because of his U.S. citizenship. But he gave the following advice:

“Do not take my advice. Do not take anybody’s advice. My advice if you’re going to be a successful investor, invest only in what you yourself know a huge amount about.”