By Ian Gilson, CFA
On January 7, 2013 S&W Seed (NasdaqCM:SANW) announced the acquisition of a half interest in 182 acres in the Imperial Valley, adjacent to the 1,880 acres that S&W Seed owns and leases in Calipatria, California. The cost was close to $9,000 an acre.
The land is currently under cultivation and will be used to grow alfalfa, mainly for the Middle Eastern and African markets. In past years these markets have accounted for over 80% of the company's annual revenue. Since the alfalfa can be harvested a few months before the Central Valley (from Stockton in the North to Bakersfield in the South and between I5 and Route 99) the seed will be available for shipment in time for planting in the Middle East.
S&W Seed does not have a significant penetration into the domestic market, which is highly competitive. The company's non-dormant varieties compete with both commodity and dormant seeds. The Imperial Valley (from the Dalton sea down to the Mexican border, Calipatria is less that 7 miles from the Salton Sea) prohibits growing genetically modified plants but is ideal for growing alfalfa. The Central Valley allows the cultivation of GMO varieties. However, it is very important not to get the GMO seeds mixed in with un-modified seeds since many countries prohibit the sales of GMO seeds. By keeping the growing and processing 450 miles apart there should be no problem.
This allows the company to grow GMO alfalfa in the Central Valley for sale in the USA and Canada (GMO alfalfa is not sold for human consumption) a market at least as large as the Middle East.
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