By Michael Pento 

By now most investors are aware of the secular bullish trend in Agricultural commodities and the companies that help increase crop yields. A popular way to gain exposure to this phenomenon has been to invest in fertilizer companies and seed companies such as Potash (POT) and Monsanto (MON). A less crowded play and one with an interesting technology focus on the agricultural sector is Golden Agri-Resources (symbol GGR in Singapore). Golden Agri features direct exposure to the booming demand for edible oils and bio-fuels with an emphasis on using technology to boost production in the most environmentally conscious manner. First let me give you some background on the company.

Golden Agri-Resources is headquartered in Singapore and employs over 31,000 people. The company is one of the largest privately-owned palm oil producers in the world with planted area of nearly 300,000 hectares in Indonesia and 31 palm oil processing mills. The company has a 20,000,000/year seed capacity along with an 840,000 ton/year capacity of refined oil in addition to a land bank of over 1.3 mm hectares, which should provide ample room for continued growth.

The company has two primary business operations. The first is the plantation and cultivation of palm oil, along with the refining and processing of crude palm oil into edible oils. The second is a deep sea port/storage operation. G.A.R. is 55% owned by SGX-ST listed Asia Food & Properties Limited (AFP), an investment holding company. Principal operations are in Indonesia, China, Singapore and Malaysia. The company's palm oil production accounted for 10% of total Indonesian output.

The financials for G.A.R. continue to show strength. The company released a solid set of Q3 2007 earnings, with revenue growth over 80% Y.O.Y. (to USD $533.7MM). In addition, Golden Agri's gross margins went from 24.1% to 34.4% Y.O.Y. while the operating profit grew 210% over that time.

Technology Platform is Key

What separates this company from most in the industry is its proprietary technology platform. At a cost of $14MM (USD) and 10 years in development, the company's state-of-the-art IT system is used to monitor plantation productivity. The information gathered is used to find optimal planting densities and nutrient levels, then the statistical data is further used to compare refiners and mills against each other for optimal efficiency. This IT also allows for accurate fertilizer application and allows the company to operate in an environmentally responsible manner.

And this is where I believe the company separates itself from the pack. One of leading objections to the use of oil palm for bio-fuels is the devastation of forest, species and habitat in Malaysia and Indonesia (the world's biggest oil palm producers, respectively). In order to garner acceptance for this fossil fuel substitute, companies must wage a campaign against the belief that palm oil production is pernicious to the environment. The companies that can prove that their production facilities operate in the most environmentally conscious manner will prove to have the best advantage.  Golden Agri has been in the vanguard of this effort and this should facilitate the acceptance of Palm Oil as a replacement fuel, and in particular, the use of the company's products before its competitors.

The future for Golden Agri also looks bright as it is currently in discussions with CNOOC and Fulcrum to expand its presence in the bio diesel market. The continued expansion into the bio fuels market, along with continued organic growth should propel the company to become the world's number one Palm oil producer in the next 3-4 years.

Despite the current record production of palm oil, prices have risen to record levels as well, indicating that supply is not yet adequate to provide for a stable price. In addition, recent changes in Chinese export and import tariffs indicate that the voracious appetite for agricultural commodities is not easily sated in that key demand-side country. The burgeoning middle class and increased wealth of Asian countries should provide for increasing demand for Palm oil and its by-products. And the added attraction of the company's environmentally friendly technology makes this investment even more attractive. Finally, 90% of Golden Agri-Resources' earnings come from Palm products, making this company a pure play for investors who want exposure to a Palm oil producing company on the cutting edge of technological advancement.