ALL Gains on Brazilian Corn Shipments Amid U.S. Drought

ALL America Latina Logistica SA (ALLL3), the largest rail operator in South America, is offering the third- best return among global peers as a three-month drought in the U.S. increases corn shipments from Brazil.

ALL, based in Curitiba in southern Brazil, has returned 23 percent for investors in U.S. dollar terms in the past two months before today, behind Russia’s OAO TransContainer’s 29 percent and Genesee & Wyoming Inc.’s 31 percent.

The worst drought in a generation may pare output in the U.S., the world’s biggest grower and exporter of corn, to the lowest in six years, Goldman Sachs Group Inc. said in a report yesterday, fueling a 58 percent surge in corn futures and a 19 percent gain in soybean prices since June 15. Demand is rising for ALL trains as Brazil builds up corn exports by 67 percent this year. Farmers in Brazil’s southeast and the western part of the country, where most of the corn crop is grown, use trains to ship their produce to ports.

“ALL is responsible for operating the railroad lines in Brazil’s most important producing regions,” said Leonardo Nitta, an analyst from BB Investimentos in Sao Paulo. “They are the obvious choice as to which company may benefit from this situation.”

Brazil is set to reap a record 69.5 million metric tons of corn this season, the government’s crop-forecasting agency Conab said July. 5. Exports may surge to 15 million tons by the end of the year from 9 million tons last year, Brasilia-based Conab estimates.

Quarterly Results

ALL rose 2 percent to 10.16 reais at 1:10 p.m. in Sao Paulo trading, bringing its year-to-date gain to 9.3 percent. That tops the benchmark Bovespa index’s 3.6 percent increase.

The rail company will likely say sales rose 7.7 percent in the second quarter from a year earlier to 1 billion reais ($493 million) when it reports quarterly results on Aug. 14, according to the average estimate of five analysts compiled by Bloomberg.

“We’ve had very different situations in each of this year’s semesters,” ALL Chief Financial Officer Rodrigo Campos said in a telephone interview from Curitiba. “The first half was hurt by dry weather that cut soybean output and freight prices that were 20 to 22 percent lower. Now we expect a second half with rising demand for our railroad because of production and freight prices that will rebound to last year’s levels.”

The value of Brazil’s corn exports almost quintupled in July from a year earlier to $423 million, the Trade Ministry said in a press release in Aug. 1.

‘Big Surge’

“We are seeing a big surge in corn exports now, basically because of the U.S. situation,” Tatiana Prazeres, Brazil’s foreign trade secretary, said in an interview in Brasilia. “This usually happens in August, but this year it happened in July.”

The U.S. drought, which hit hardest during a critical time for developing corn and soybean plants, has pushed up prices as potential yields and quality have fallen. At least 48 percent of U.S. corn and 37 percent of soybeans were rated as poor or very poor as of July 29, according to the U.S. Agriculture Department.

ALL’s recent share surge gives it price-to-earnings ratio of 29.6, the most expensive among global peers after Australia’s QR National Ltd., according to data compiled by Bloomberg.

Risky Stock

“I wouldn’t say that ALL is expensive, even if it is a little over our target,” Felipe Vinagre, an analyst at Barclays Plc, said in a telephone interview from Sao Paulo. “What isn’t favorable is the return-to-risk ratio because there are lots of risks involved, especially regulation in the short term.”

The railroad operator also stands to benefit as soybean output surges, BB Investimentos’ Nitta said. Farmers are set to harvest a record soybean crop of as much as 83 million tons in the 2012-13 season, which would propel Brazil past the U.S. as the world’s biggest producer of the oilseed, Sao Paulo-based consulting firm Agroconsult said in a July 13 report.

ALL is ready to handle the increased shipments after it invested 700 million reais since 2009 to expand capacity at its railroads in Mato Grosso state, Campos said.

“We are prepared to grow an average of 10 percent in the next five years,” he said. “Let’s just hope that the forecast for good crop output next season becomes a reality.”

To contact the reporter on this story: Mario Sergio Lima in Brasilia at mlima11@bloomberg.net

To contact the editors responsible for this story: Jessica Brice at jbrice1@bloomberg.net; James Attwood at jattwood3@bloomberg.net

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