StockBullz.com

Something to Keep an Eye on Down the Road unless you have $40-million (U.S.)....

Hot commodity cravings
by TAVIA GRANT
Monday, April 10, 2006
http://www.globeinvestor.com/servlet/story/RTGAM.20060410.wnutss0410/GIStory/Email

Forget those trendy commodities such as gold or zinc. Cranberries are the new copper.

So are heart-healthy almonds, a fact well known to Manulife Financial Corp., Canada's largest insurance company and — it turns out — the largest farmland manager for institutional investors in North America.

From almonds, cranberries and pistachios to the grapes that supply Robert Mondavi Corp., Vincor International Inc. and Australia's Yellow Tail wine, Toronto-based Manulife is reaping the fruits of a consumer shift to wine over liquor and nuts over chips.

Returns of its Hancock Agricultural Investment Group, which buys farmland properties and manages them or leases land to farmers, leaped 37.4 per cent last year after a 21.4-per-cent return in 2004, outstripping even the stellar performance of the S&P/TSX composite index.

Why are investors so nuts about nuts? “It's a good diversifier,” said Leo de Bever, executive vice-president of MFC global investment management who previously worked at Ontario Teachers Pension Plan. “There's more and more emphasis on finding niches in the market that haven't been used before and this is certainly one of them.”

Take almonds, for example. The value of Hancock Agricultural's almond holdings more than doubled last year, jumping 111.2 per cent, amid soaring demand. A plug on Oprah Winfrey's show last year didn't hurt either. Almond prices, which have more than quintupled since 1970, are set to rise even further, making them “among the most profitable horticultural crops produced in the U.S.,” that country's Department of Agriculture predicts.

“We've done extremely well in the nut crops,” said Jeff Conrad, Hancock Agricultural's Boston-based president and managing director, both because of dietary trends and as a weaker U.S. dollar makes exports more competitive.

Among his group's holdings, Mr. Conrad favours apples, walnuts, pistachios and almonds. “We also like cranberries,” he said. “The industry's gone through a tough time [after production ran ahead of demand] but a lot of times that's when we like to invest.”

Hancock Agricultural says it's now the second-largest cranberry and walnut producer in the United States. It's the third-largest pistachio producer and the fourth-largest for macadamia nuts and almonds. It also has a large presence in the apple market.

While most of its $600-million (U.S.) holdings are in the United States, the company also grows grapes in Australia. It has no properties — yet — in Canada.

Manulife's ownership arose out of its $15-billion (Canadian) takeover of Boston-based John Hancock Financial Services Inc. in 2004. Hancock Agricultural, founded in 1981, is a unit of John Hancock.

Mr. Conrad, who grew up on a dairy and crop farm in Pennsylvania, likens his business to any other.

“Agriculture is, like many of the industries in North America, going through consolidation and those that have the scale and are effective in their management — good execution — you can do quite well. And you have to be in the right sectors.”

Those set to pour their life savings into almonds may have to hold off, however. Manulife's fund is aimed at institutional shareholders and has a minimum threshold of $40-million (U.S.). Canadian institutional investors are eligible. Mr. Conrad didn't rule out offering these types of investments to retail investors in the future.

For now, pension funds are the main investors, as they seek to diversify their holdings away from stocks and bonds and juice (so to speak) their returns. The Alaska State Pension Fund, for example, has $100-million invested with Hancock Agricultural.

Mr. Conrad stresses that these types of investments are meant for the long haul.

“We think the U.S. is well positioned in those sectors to be strong and viable over the next 20 years,” he says.

What keeps Mr. Conrad worrying at night is not the threat of hurricanes, nor early frosts. He knew about those risks when he got into this game. Instead, it's other elements out of his control such as a strong greenback or an international trade war that could target the likes of U.S. apples or macadamias.

But foreign unrest could also work in his favour. The Iranian hostage crisis from 1979 to 1981 interrupted Iran's pistachio exports and sent prices through the roof.

Today, the buzz among U.S. pistachio farmers is that Iran's exports could again be hit amid tensions between the two countries. That's good news for U.S. farmers. They are the world's second-largest pistachio supplier behind Iran.

It's also good for Hancock Agricultural investors. Mr. de Bever of Manulife predicts the portfolio will continue to generate double-digit returns in the years ahead.