Recently a public discussion began (again) in Finland to ban the fur animal farming due to the bird flu that the animals were infected with. I don't know how large percentage of furs Saga sources from its homemarket, but I would consider this as a major political risk.
Here's a list of news that are covering the topic in Finnish. They might be behind a paywall.
Yes, the banning of fur in Finland would probably be the biggest risk to the stock. While it is very hard to predict, even with the ban and a potential liquidation of Saga Furs, the downside should be protected because it trades below liquidation value.
What are the reasons Kopenhagen Fur closing shop? Guessing they aren't making money and last couple years have been tough and industry outlook doesn't look encouraging. But would love to hear what you learned on this point. Thanks for the idea!
The financial analysis is well thought out and the expectation of Saga enjoying a near monopoly is correct. The risks are (1) Farmed fur skin sales in units and dollars continue to be weak or decline further, (2) Farmers pelt out due to losses and Saga loses viable producers along with unit volume, (3) Kit loans to value made to farmers represent credit risk. You see, fur auctions have 2 primary income streams. Commissions at auction and Kit Loan (Interest Bearing Receivables from Producers) interest charged to producers-essentially a farmers credit line to grow the mink throughout the cycle, while securing the selling rights at auction. But what happens if the kit loans extend $40 per mink and the auction sells for $30 per mink as has happened to other auction houses? Fur auctions need large volumes at higher unit selling prices to be profitable. It would seem both income streams are at risk.
Hey, thank you very much for your comment. Comments like those are the reason, why I publish write-ups. You are correct, that if prices stay low, they are not able to earn money. This is - and - lower volume are the biggest risks. As I lined-out in my thesis, I think that both should recover to a certain extent (volume because of the monopolistic Position) and price because of the low supply.
In 2020. Denmark govt ordered shutting of all mink farms on suspicion that they were carriers of C-19. Only in Dec 2022 was this ban lifted. So effectively supply came to near 0 for 2 years. My guess is the demand went away too since Denmark supplies 40% of global mink fur demand. The concern here is price getting low (signalling low demand) even though supply was shut. I would expect the mink fur price to be high last 3 years if supply has been shut off but that was not the case.
Would love to see this play out purely from an intellectually curious exercise.
Thanks for your comment. Demand was also low due to covid in 2020. 2021 saw relatively high prices. In 2022 the Lock-down in China and Russian war (both are the biggest client groups) - lowered demand. So I think these events should explain, why the price was low in 2020 and 2022.
Most of their buyers at auctions are from Russia and china. China was weakened after Covid because of the extended lockdowns. Demand from Russia still suffers from the war in Ukraine. If Kopenhagen Furs numbers for 2019 were correct, we would have gone down from ca. 38m pelts sold in 2019 via auctions to close to 30m in 2023.
Recently a public discussion began (again) in Finland to ban the fur animal farming due to the bird flu that the animals were infected with. I don't know how large percentage of furs Saga sources from its homemarket, but I would consider this as a major political risk.
Here's a list of news that are covering the topic in Finnish. They might be behind a paywall.
https://www.hs.fi/haku/?query=lintuinfluenssa&category=kaikki&period=whenever&order=new
Yes, the banning of fur in Finland would probably be the biggest risk to the stock. While it is very hard to predict, even with the ban and a potential liquidation of Saga Furs, the downside should be protected because it trades below liquidation value.
What are the reasons Kopenhagen Fur closing shop? Guessing they aren't making money and last couple years have been tough and industry outlook doesn't look encouraging. But would love to hear what you learned on this point. Thanks for the idea!
They liquidate because Denmark culled mink production: https://en.wikipedia.org/wiki/2020_Danish_mink_cull
The financial analysis is well thought out and the expectation of Saga enjoying a near monopoly is correct. The risks are (1) Farmed fur skin sales in units and dollars continue to be weak or decline further, (2) Farmers pelt out due to losses and Saga loses viable producers along with unit volume, (3) Kit loans to value made to farmers represent credit risk. You see, fur auctions have 2 primary income streams. Commissions at auction and Kit Loan (Interest Bearing Receivables from Producers) interest charged to producers-essentially a farmers credit line to grow the mink throughout the cycle, while securing the selling rights at auction. But what happens if the kit loans extend $40 per mink and the auction sells for $30 per mink as has happened to other auction houses? Fur auctions need large volumes at higher unit selling prices to be profitable. It would seem both income streams are at risk.
Hey, thank you very much for your comment. Comments like those are the reason, why I publish write-ups. You are correct, that if prices stay low, they are not able to earn money. This is - and - lower volume are the biggest risks. As I lined-out in my thesis, I think that both should recover to a certain extent (volume because of the monopolistic Position) and price because of the low supply.
In 2020. Denmark govt ordered shutting of all mink farms on suspicion that they were carriers of C-19. Only in Dec 2022 was this ban lifted. So effectively supply came to near 0 for 2 years. My guess is the demand went away too since Denmark supplies 40% of global mink fur demand. The concern here is price getting low (signalling low demand) even though supply was shut. I would expect the mink fur price to be high last 3 years if supply has been shut off but that was not the case.
Would love to see this play out purely from an intellectually curious exercise.
PS: Great pick. Great write up! :)
Link to an interesting article: https://www.theguardian.com/environment/2022/nov/14/ghost-farms-the-mink-sheds-abandoned-to-the-pandemic
Thanks for your comment. Demand was also low due to covid in 2020. 2021 saw relatively high prices. In 2022 the Lock-down in China and Russian war (both are the biggest client groups) - lowered demand. So I think these events should explain, why the price was low in 2020 and 2022.
Thank you for this off the beaten path and intriguing idea.
What’s the trend for fur demand ? If negative how fast is this ice cube melting ?
Also You mentionned production figures in the western world, any data on global production ?
Most of their buyers at auctions are from Russia and china. China was weakened after Covid because of the extended lockdowns. Demand from Russia still suffers from the war in Ukraine. If Kopenhagen Furs numbers for 2019 were correct, we would have gone down from ca. 38m pelts sold in 2019 via auctions to close to 30m in 2023.
It's a 'cool' company but a total nothing burger investment that is not evidently a clearly a buy.
Otherwise, it would not trade as a net-net.
More than fair. Wasn't totally aware of the net net status. Read every line and enjoyed the pitch nonetheless.