Great second quarter results for SANW
Ian Gilson, CFA
The second quarter illustrates the impact of the return of Saudi Arabia as a customer. Alfalfa seed revenue increased from $0.5 million to $4.1 million, the later harvesting in 2011 increased the milling and processing revenue and stevia made its first (small) contribution. The severe discounting of alfalfa seeds in the Middle East has ended due to the shortage of all types of alfalfa seeds. S&W Seed’s proprietary seeds are now selling at a premium to commodity seeds of between 15% and 20% whereas it was close to 30%. This has encouraged many growers to return to, or to start to, using the proprietary seeds. The selling price in the December (2Q12) quarter was essentially the same as in the 1Q12 at $3.70 a pound. The company has 1.2 million pounds of seed in inventory, at a cost well below the current selling price.
Through leasing, buying and contractual agreement the company now has 4,300 acres available for alfalfa cultivation, up from 2,400 acres harvested last year. The Saudi Arabian market uses over 14 million pounds of seed a year, with a three year rotation.
The company booked $0.025 million in stevia sales in the second quarter. The 114 acres planted was used as a test site to prove out the cultivation methods and not to maximize production. The plants are significantly bigger than those grown in China. Total Steviol glycoside concentrations are well above average. S&W Seed (SANW) is cultivating several million seedlings in greenhouses for planting when the weather improves and will add between 80 and 150 acres, depending on how far apart the plants are. Some of the plants will be harvested for leaf twice a year, in June and September, and some just once a year. Harvesting occurs when the plant begins to flower.
The company is looking to expand acreage as long as it is profitable to do so.
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