Small cap agriculture stocks such as CVGW will become the benefactors of evolving consumers as demand for food increases with population. Worldwide food demand is likely to double in 2050 and companies must increase production through modern science and innovation.
Furthermore, with the worldwide trend shift in which consumers demand fresh, organic, safe and local foods, small-cap food producers become key players in this changing market. In March of 2013, CVGW created FreshRealm LLC, a fresh food cloud-based technology business that will create a platform for food industry participants to efficiently run their business. Calavo will hold the majority of shares in this business that will ultimately serve as an engine connecting fresh food producers to a network of consumers. The scarcity in small cap agricultural companies means that big winners are likely to come from the selected few.
Another microcap agriculture producer, Limoneira Company (LMNR) is also worth noting as Calavo owns 15% of the company. LMNR is one of the largest lemon producers in the US and has recently partnered with Canadian experts to expand the innovative use of lemons including health, beauty and cleaning. The campaign is likely to increase lemon consumption in the future according to CEO Harold Edwards.
Calavo is not without its challenges. Every distributor has to deal with fluctuating fuel costs which can seriously hamper the bottom line. Diesel fuel, most commonly used in ground transportation, has been holding relatively steady this past year. This change from the steep increases of the previous 5 years has made predictability and profits more consistent. Should diesel spike from its current rate, around $3.60/gallon, it could cause produce prices to go up enough to lower demand. For now that is not a problem because crop sizes have been suffering in the most recent quarter as a result of irregular weather patterns in southern California. However summer is expected to have a much larger crop yield and the smaller sizes have actually temporarily increased demand past supply driving prices of avocados up. This paired with a near record volume should mean a record setting year for Calavo and other major distribution sources.
Source: seekingalpha.com
Calavo is not without its challenges. Every distributor has to deal with fluctuating fuel costs which can seriously hamper the bottom line. Diesel fuel, most commonly used in ground transportation, has been holding relatively steady this past year. This change from the steep increases of the previous 5 years has made predictability and profits more consistent. Should diesel spike from its current rate, around $3.60/gallon, it could cause produce prices to go up enough to lower demand. For now that is not a problem because crop sizes have been suffering in the most recent quarter as a result of irregular weather patterns in southern California. However summer is expected to have a much larger crop yield and the smaller sizes have actually temporarily increased demand past supply driving prices of avocados up. This paired with a near record volume should mean a record setting year for Calavo and other major distribution sources.
Source: seekingalpha.com
