By Ian Gilson, PhD, CFA

NASDAQ:SANW

S&W Seed (SANW) announced on August 05, 2014 that it has contracted the production of its high yield California alfalfa seed varieties in about 1,000 acres of land in Australia. The initial (meaning more acres later) planting will be harvested in the Australian harvest period of March and April in 2015.

The costs of production are lower in Australia than in California. Assuming comparable yields this production should have a modest but positive improvement in gross margins. The cost of shipping seeds from Australia to the Middle East are about the same as the cost of shipping from California.

The company has four basic strategies (these are not triggers or events) that do, to a certain extent, overlap. These are:

A) Expand current production by adding acres or using higher yield varieties.

B) Introduce higher value varieties in place of lower value (often commodity) seeds.

C) Add Round-Up Ready alfalfa seeds in those areas where it is legal to do so.

D) Produce proprietary Stevia seeds possibly to be sold to its partner Pure Circle.

All of these strategies should grow sales with products that carry much higher gross margins.

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