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SANW: Expanding into dormant alfalfa

By Ian Gilson, CFA

S&W Seed (SANW) has purchased the rights to a portfolio of dormant alfalfa seeds that are suited to colder climates. The company's current product mix is more suited to hot climates and this extends its available market into colder climes. About 80% of the alfalfa seed sold in the US are the dormant varieties. This is additional potential business and does not replace the production of non-dormant seeds.

The plants that produce these seeds are grown in colder climates and S&W Seed will have to make arrangements with growers, or lease or buy land to produce the seeds. The selling prices are less than those of the non-dormant varieties and gross margins would also be below the current level. Gross margins for the full fiscal year 2011 were 37% and the dormant seed margins would probably be closer to 30%.

Some of the varieties acquired have been sold in the North American market in prior years so growers have experience with them. Other varieties will be developed by S&W Seed to be more productive. Plantings will start this fall and seed should be available for sale in the fall of 2013.

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