As itself, Dec and Jan are lean months. Shrimp farming/availability falls to 2T/day vs 20-30 T/ day. Vannamei farming in India is a 10 month industry.
So if there is no real outbreak of disease, then this is in the normal course of things. But the tone of the first PDF wasn’t sanguine. So better to track actual effect on ground.
Ya that’s true Donald. The tone of the first pdf wasn’t positive at all. However, in the second pdf, MPEDA does mention that ‘Hence it is further clarified andreiterated that MPEDA is NOT going to halt shrimp farming inIndia by end of February 2014. In fact the crop holiday fromDecember 2013 to February 2014 is to be viewed as makingpreparation for a bumper crop in 2014’. Not sure how is it going to impact Avanti’s H2FY14 results. Will wait for the ground feedback.
Look at these links now-
Early Mortality Syndrome Confirmed
http://www.seafood.com/ Link: http://www.seafood.com/
Don’t know what is the actual situation?
Request Donald & Team Hyderabad to confirm from the ground.
However, the stock price indicates otherwise!
I guess market is not reacting to the ems disease as it has been found only in 2 sample out of 200 ,the probability of an outbreak is very remote .Moreover it will be a fresh start as there will be mo farming till Feb and the ponds will be completely dried up so
Does it also mean that q4 will be a very lean quarter ?How much impact it will have on the eps
My enquiries seem to confirm that this is in the normal course of things. These things happen in a few instances - in the unorganised industry - where some small players resort to smuggled seeds from unapproved sources - and dont go through the quarantine process, etc.
Processors/Farmers don’t seem unduly perturbed. They are pretty sanguine about a normal season from next February onwards.
Having said that if there are still a few who have aggressive allocations (in the 160-200 price range) it is advisable to cut allocations to sub 5%. As we can see almost every alternate week we see cyclone threats and disease news keep coming up often.
My educated guess is these things are par for the course and are taken as events in the normal course of things that this industry faces. Avanti Feeds Management sounded pretty sanguine - despite all these variables - and they may be absolutely on the money here.
BUT we will know that FOR SURE after a year or two of familiarity with the business. Because of the huge undervaluation in the business - we must stay put in Avanti Feeds at low allocations - and may be in the 2nd year we will know enough of this business and have enough linkages with processors/farmers/distributors to understand the realities of the game well.
That will be time for a big bet:). I remain an optimist in this business. But low allocations please - no one should go overboard.
Just got confirmation from a big farmer in Nellore.
According him things are absolutely normal. He just harvested a fresh crop. And the last harvest is 2 weeks away. He is still getting the Rs 500-600 rates.
Ponds will be left to dry totally in Dec Jan early Feb as per normal practice.
According to him the EMS news in East Godavari district is only information, unconfirmed at the moment. No Sir, we are absolutely not worried!. Period.
from seafoodnews.com
Indiaas Marine Products Export Authority has confirmed shrimp EMS at two farming sites and has set a moratorium on pond stocking after November as part of a series of measures to combat the spread of the disease.
However, most of Indiaas reported disease issues involve cases of whitespot. In India, the issue is not primarily EMS itself but the uncontrolled and unregulated expansion of hatcheries with non-certified brood stock. John Sackton discusses this in our video today.
https://www.youtube.com/watch?v=-TUE6H39RIk&feature=youtube_gdata
A 3rd party report confirming more or less the same thing
a) There can’t be any immediate market effect as the orders yet to serviced are almost over from current crop
b) Nov - Feb is anyway very lean months
c) More a case of disease management.
More will be known actually by onset of next spring to summer season from Mar 14 onwards. Nothing can be established either way in these 2-3 months Dec-Feb
Hi Donald,
Thanks for the updates. I also spoke to someone in the industry and he also explained the similar thing - that the mortality in the industry is more due to greed of farmers and unorganised sector and the EMS problem as of now is on just 1% of sample size…which is not something to worry.
Also, if a crop holiday is enforced, though a short term pain but it will be actually good for the industry as this is a lean period and will help in re-preparing the ponds etc.
Overall, given so many variables and this short term negative, I have decreased my exposure and allocations. A better picture would probably emerge only after 5-6 months and we will have a better feel of things then.
Regards,
Ayush
I may be wrong, but I think too much emphasis is being given to valuation in case of Avanti Feeds [No way suggesting that valuations are not important]. Just trying to analyse Avanti feeds from a different perspective. Charlie Munger often says one need to apply various mental models to analyse any situation. [Please see after write up on details of models]. So letâs try to use 3-4 models to analyse this investment idea.
So now applying th**e information model the critical factors for the success of this idea I think are international processed shrimp prices and shrimp feed raw material prices. Is there any way to estimate what will the prices one year down the line? I think these critical factors fall into important but unknowable. **So we are in a situation where important information is not knowableâ.
System thinking model tell us **The more parts involved and the more they interact, the more can happen, and the harder it is to determine consequences of individual actions. **I think majority will agree with me that there are too many moving parts or too _many moving parts have to befavorableto us, for outcome to befavorable. _
**Probability model **tells us that for every investment we should think in terms of probability of gain and loss and the quantum of gain and loss when it happens. So anybody who thinks itâs a good idea to invest [please do not get me wrong, I am not trying to say Avanti seeds stock idea will not work] **should try to quantify the expected returns **by estimating probability of success and quantum of profits and probability of loss vs quantum of loss. If the expected return is attractive, then only one should invest.
Finally one should remember what will happen when many unfavourable factors combine together. As critical mass model suggest the impact wonât be linear, it will be a nuclear explosion.
Information model
There are two questions you ask yourself as you look at the decision you’ll make.
Is it knowable?
Is it important?
If it is not knowable, as you know there are all kinds of things that are important but not knowable, we forget about those. And if it’s unimportant, whether it’s knowable or not, it won’t make any difference. We don’t care. But there are enough things that are knowable and important that we focus on those things. And everything else, we forget about.
System Thinking
Mark Twain said: “The art of prophecy is very difficult, especially with respect to the future.” It is hard to predict something when we don’t (or can’t) foresee or understandhow an entire system works, what key****variables are involved, their attributes, how they influence one another and their impact. Even if we know the key variables, their values may be impossible to estimate. They may also change over time and be dependent on context. It may also be impossible to estimate how they will interact as a whole.
The more parts involved and the more they interact, the more can happen, and the harder it is to determine consequences of individual actions.
Thinking in terms of probability
Warren Buffet on expected return âTake the probability of loss times the amount of possible loss from the probability of gain times the amount of possible gain. Thatâs what weâre trying to do. â
Critical mass & Nuclear explosion
âWhen many forces are working in your favor,â Mayer says, âamplifying and reinforcing each other, you get what Munger calls a âlollapalooza effect.ââItâs like critical mass in physics. Create enough concentration of mass and youâll set off a nuclear explosion.
Dear Donald and Ayush,
As someone who hails from Nellore and have had family links to prawn farming in the past, I can confirm the input on the EMS issue which has been a secluded event and the chances of any major breakout in the months of NOV-FEB is very minimal.
My sources also suggest that the effects of recent cyclones on the southern cost of AP was close to irrelevant excluding some minor incidents in the northern cost.
Regards,
Vamsi
Found this article on business line where people from industry are questioning the authority of MPEDA to declare a crop holiday
http://www.thehindubusinessline.com/industry-and-economy/agri-biz/mpeda-crop-holiday-move-for-shrimp-farming-muddies-waters/article5414921.ece
T Anil Kumar - Thanks for your detailed write-up. Agreed that there are more variables in this business. Therefore allocations cannot be high. Period.
To look at this from another perspective.
All these variables were there 3 years back too, have remained while this business has grown from 300 Cr to 600 Cr to now 900-1000 Cr in 3 years. There are senior investors who evaluated the probabilities and have stayed invested - I personally know - from Rs 37 onwards! and have been buying all the way to Rs 160 and more…just about when we met Management and I decided to buy -in.
Investment is less Science and more an ART form! Many remain stuck trying to use too much of science - and no harm in that - its better to stay in one’s competence zone. However it is another to be blind to how senior investors pit under-valuation versus the higher risk in the business. There lies the essence of the “skill” needed in gaining more access to the ART side …having a feel for what works and what doesn’t…and it will only happen one way…by our active (read invested) experience with many diverse types of businesses.
Everyone should attempt to learn to balance the “undervaluation” vs higher “risks”. In my book, I attempt that with lower allocations as I realise Risk and Reward always go hand-in-hand. Just as in life, so in investing - one has to take some amount of risks for higher gains. If we sit tight with zero risks, for sure we can’t have enough market-beating returns.
Having said that, it is not akin to playing blind in Avanti - as it might be appearing to some :-). We can be pretty responsible about managing higher risks, can’t we.
Vamsi,
Thanks for letting us know you are (native) from Nellore :-).
So we know another one to ping. Yes, at the moment the assessment of the situation is business as usual.
Not to say things won’t/can’t change! Those who are heavily invested have to track developments pretty solidly. I have low - less than 5% allocations now, so I am happy to take on the seemingly higher risks for the bigger undervaluation skin in the game.
If you are invested, do stay in touch back home on a regular basis 
and keep us updated. That will be an invaluable service you can render for all of us invested/tracking.
The events in the recent past have made me realise that Avanti isn’t as big a ‘no-brainer’ as I had thought it to be.That said,its still a good high-conviction,low-allocation investment,especially with the kind of feedback we at ValuePickr,have. Valuations will continue to be suppressed since the risks are very unpredictable.But ever since the Rupee depreciation episode,I feel a greater degree of sustainability has crept in for Avanti.Though,its short-term in nature,some recognition has been awarded.I feel a re-rating of 3-5%(in step with Rupee depreciation) every year & beyond that earnings,is what we can have as ‘returns’,roughly.Though the story is good,the uncertainities in the biz. will keep a permanent lid on valuations.
Disc.: Hold a bit over 5% here 
Was studying how EMS affected Thailand shrimp industry. There was huge volume loss, but the damage in value was very subdued because of doubling of the prices.
Today, India is largest exporter of shrimps to USA. In case, EMS outbreaks in India, the global supply will reduce, and the prices may further go up by 30-50%. So, even if let us say Avanti’s volume is hit by 30%, the price will compensate for it.
This brings down the uncertainty in valuation atleast. EMS outbreak, which may not happen at all in India, will be an opportunity to double/triple allocation as the stock will crash
I think this may be a category C stock! Cheers!
“The scarcity of vannamei seed was forcing farmers to use inbred inferior seed and that may lead to many problems in the future”
This points out to two issues:
First being very strong quality control in place for imports (mentioned before in this thread), whichminimizesthe risk of outbreak of diseases like EMS.
Secondly, if this trend continues then demand will be meet as in the case of the gold wheresmugglingindustry has flourished lately.
Trying to confirm and find if any correctivemeasuresare being taken! Will report with more information then.
Please read the article here:http://www.undercurrentnews.com/2013/11/19/lack-of-broodstock-hindering-shrimp-production-in-india/
Vannamei Prices in Dec
http://www.shrimpnews.com/FreeReportsFolder/NewsReportsFolder/WorldTableVannameiPricesDec2013.html
India is $6+
New High today!
http://www.intrafish.com/ShrimpEMS/
Some of the headlines are
Global shrimp supply to shrink by 8%
Indian disease was Whitespot, not EMS
3)http://www.undercurrentnews.com/2013/12/23/us-shrimp-market-picks-up-amid-holiday-uncertainty/
