Argentina – The new Emerging Market Star

Interview from CNBC…. – click here

http://www.cnbc.com/id/15840232?play=1&video=1567968073

Argentina’s mid-term election: Walloped | The Economist

It looks like sanity is starting to come to Argentinean politics. I just hope we get a chance to take advantage of the ever decreasing peso before the power shift is complete!

Argentina’s mid-term election: Walloped | The Economist

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Trucking along

Well, there’s not too much to report with our vineyard…we’re at the point now where we’re just letting things grow!

We are now definitely introducing seed potatoes, garlic, and onions into our land to get some immediate cash flow while we’re waiting for the vineyards to bear fruit. We’re also definitely going to be putting livestock on our land and letting them multiply.

Now, the question we are easily asked most often is, “Why Argentina?” and the answer is: Price. There’s nowhere else one can find property that has the combination of such a low price with such good agricultural infrastructure and an excellent (if slow) system of land titles. We always say in all aspects of our business, the one thing you can’t change in property management is how much you paid for it. And the best thing about Argentina is that prices are so low that there is virtually no capital risk – even if we did nothing with it and sold it five years hence, we would at least get the original amount that we paid.

As a bonus, the value of the property area we are not “developing” will rise just because we will be raising the utility and the revenue on the area of the property we do have crops and livestock on. This has happened often in other areas.

As always, for information on how to invest in the Argentina project, fill out the contact form on our main site, or call us. 1 (800) 760-4909 or 1 (403) 688-7767.

Good News!

Numbers are in for all Argentinean wine exports for the first couple months of 2009. And the news is mostly bad…with the extremely notable exception of…glass-bottled wine, largely driven by demand from the United States. Check out an article on the report here.

These are nice numbers to affirm what we’ve been saying for the last couple months…people drink more in a recession, but they also start looking more for value. Argentinean wine is certainly exploding on the critical level, but what’s really driving sales is that it’s so cheap compared with other good wines from more expensive areas.

From Rags to Grapes

Some of you may still not be convinced that Argentinean wine is the best investment right now.

This article would be for you.

Trade shows

It’s been a busy time promoting the project for us in the last couple weeks! First we were at WineFest in Calgary, and now we were just at the Financial Forum in Vancouver.

Interest has been high, we’re happy to say. As you might imagine, the atmosphere between the two events couldn’t have been more different. WineFest was extremely social, full of mingling and laughs. Excitement was mostly concentrated on the investment being RRSP eligible and minimum being so low. It was a great time, and hopefully our fortunes will take us there again one way or the other!

The Financial Fund had a completely different feel, not quite as social of an event and the interest in the project mostly concentrated in the vein of “What? 70% guaranteed in five years? Can you repeat that please?”

They were both great experiences and we got plenty of interest from both events. We’re going to be at the upcoming Business Forum in Vancouver as well. Feel free to drop by and say hello if you happen to be there!

A snapshot at WineFest:

From left to right, Douglas Thiessen, Andrea Thiessen, and Kerry Philpott.

Finally, a couple links of interest. Malbec is getting more and more good press to buttress its growing sales. And it looks like the US isn’t the only one drinking from Argentina like there’s no tomorrow. This all makes for a lot of excitement over here on our end!

Vines of Mendoza in Newsweek.

One of the people I visited with when I was in Mendoza was Michael Evans, one of the founders of the “Vines of Mendoza”. In a way, this is what we want to be when we grow up. Incidentally, an article was published in Newsweek while I was there. You can find it here. Their vineyards are selling for $145,000/hectare. the difference between them and us is that they are in the Uco Valley, a region that is already established, and we are in an area that is in the process of being established. Of course, our cost base is much lower – we’re starting with a cost of $500/hectare and planting costs of less than $10,000/hectare.

It was the same situation in Neuquen when Bodega Fin Del Mundo started out. They owned a large piece of property more or less in the middle of nowhere, and began to plant. The property was inexpensive and their costs were generally low. As they began to develop, others came to join them, specifically NQN and Familia Schroeder and a new wine region was born. Will our vineyard land eventually sell for $145,000/hectare? Doubtful. We would be happy with $40,000!

Wines, vines, credit and a good natured shrug.

It’s a wacky world in Argentina, and specifically Mendoza is even more surreal. While the rest of the world is circling the rim, Mendoza’s wine exports are up, and thanks to a mendacious, spendthrift government, winemaker’s costs are up, but their profits are up even more, because they get paid in dollars. Expenses in pesos, profits in dollars. And because Argentina continues to be the world’s low cost producer – by far – demand for their wines is steadily increasing. And it’s good stuff. In the latest Wine Advocate (undoubtably the most influential wine publication in the world), Jay Millar states that, “Sales of Argentina wines continue to explode despite economic hard times in the USA. It’s not just about the seemingly ideal bond between the Malbec grape and Mendoza terroir. Inexpensive labor and land (roughly $30,000 an acre compared to $300,000 in Napa Valley) plus an ideal climate and a good water supply from the Andes make for low production costs. A recent estimate by Luis Steindl, CEO of Bodega Norton, is that production costs in Argentina are about one-fourth of what they would be in California or France. From 2002 to 2006 exports to the USA tripled and that trend has continued over the past two years….Working in Argentina’s favor is that most of the wine that is exported is of relatively high quality (as compared to the mediocre “critter” wines that have so tarnished Australia’s reputation). That appears to be due to the well ingrained food and wine culture of Argentina. Per capita consumption is approximately 30 liters compared to 20 liters in Australia (thought to be a hard drinking nation) and 7 liters in the wimpy USA. As a result, bulk or “grocery store” wines are consumed in Argentina and what is left to export is at a premium level where the chances of a positive experience are relatively high.”

Nowhere in the world can you grow grapes and make wine in such an ideal climate with such a low cost base and such a ready and growing market (the United States consumption is expected to increase substantially).

I spent the last week of January and part of the first week in February in Mendoza and Buenos Aires. People are busy doing business, despite the crisis, the government shenanigans and the impending sense that there will be yet another national crisis of some nature. But they are circumspect. They expect it every ten years or so, they are used to it. And since the country has had little to no commercial and consumer credit since 1992, no one is overextended. So when I talk with my Argentinean friends about the finacial crisis in the rest of the world, they smile, shrug their shoulders and reply that it isn’t anything that they haven’t gotten used to.

Since we are in expansion and acquisition mode, the recent events have actually been good for us. The peso seems to be going through a kind of controlled devaluation, and the consensus seems to be that it will be 4:1 to the U.S. dollar by the end of the year. It is probably the only way that the current administration can effectively deal with their woeful mismanagement of the economy. Since we pay the bulk of our expenses in pesos, we are sympathetic for others in Argentina who are losing purchasing power, but pleased that every time we go to exchange money for our expenditures we get a bigger bump. Of course, some people are getting smart and pricing their goods in U.S. dollars.

Our test plot seems to be thriving, and our latest discussions with our partners in Argentina is that we should plant some annual crops such as potatoes (for seed), garlic and onions in the fall, and throttle back on the initial vineyard. The thinking is that the other crops will give us cash flow within a year, and cost much less to plant, whereas the vineyards take at least 5 years before they are economically viable and cost much more to plant and tend. And once we’re ready to plant there, it is not difficult to replace these crops with vines. They make a good point, and we’ll run the numbers and see what we find is reasonable. Cash flow in the near term is always a good thing, but the real money over the longer term is in the vines.It was also strongly suggested that we buy a few sheep…they multiply steadily at no cost to us, cost us nothing to feed and can bring in a pretty good price. I have to admit that I like the animal compounding idea (4 becomes 6, 6 becomes 9, etc….), but I am skeptical that it is as easy and foolproof as all that. I’m sure that is worth investigating, however, and the fact taht we are getting organic certification certainly won’t hurt the price of the lambs.

Still, it is the vines that we are focused on. We have an ideal terroir for pinot noir, syrah, malbec, chardonnay and sauvignon blanc, possibly merlot and cabernet sauvignon as well. The wine business continues to thrive in Mendoza despite (or perhaps assisted by) the worldwide credit crisis. People tend to drink more in a downturn, but they look for value, and Argentina is at the top of the wine world in terms of cost/value.

Argentina and the IMF

The Argentinean government earned a poor reputation with most of the world when if defaulted on $106B worth of bonds in 2002, much of it owing to the IMF. In December of 2005 the government repaid the IMF and presented their other debtors with a take-it-or-leave-it settlement that only paid pennies on the dollar. Many took it, deciding to wash their hands and move on, but may, most notably a group of investors know as the Paris club, decided to hold out, effectively tying the hands of the Argentinean government and preventing them from borrowing from anyone except Chavez in Venezuela and extorting money from their own people. Now they have re-privatized the private pension funds, a move which makes sense from the standpoint that it was poorly set up originally and the government had all of the liability but no control. Of course it also gives them access to the funds and effectively kills the private capital market in Argentina.

Coupled with the financial downturn and reduced revenues from the decrease in commodity prices, the situation quite bleak for Argentinians – and the sad thing is that it’s a robust scenario for foreign investors such as us. Since the we pay most of our expenses in pesos we have the advantage of  very low operating costs. And since land is valued in US dollars, it holds its values regardless, though there can be volatile short term fluctuations. Should property all of a sudden crash in price, as it did during the 2002 crisis, we are in an excellent position to purchase more, knowing that it does not remain ridiculously low forever. And of course, since everything in Argentina is paid for with cash, we have no worries of defaulting on our position.

Our vineyard project is really geared with at least a 5 year time horizon, so short term problems in the country will in all probablility work in our favor.