Agriculture Investment Update

Ag Investment
Ag investment themes are still strong underlined by some higher transaction
values across the last quarter. Cropping, water and some beef assets have traded
at higher values but its not across the board. Higher interest rates leading to
buyers dealing with higher hurdle rates (particularly large investors) and Bank
debt harder to secure (for private operators) has made it essential that the sales
agent markets the property well and on target. Buyers are needing to ensure the
property performs to expectations so having a strong history of performance and
presentation is essential. There has also been some recycling of assets where
owners have or will take advantage of the strong asset prices to allocate capital to
other markets or sectors. Whist the market has been strong over a sustained
period, there is still value within the market and some sectors, if you would like to
discuss, drop us a note…
The general market outlook we think its best summed up by Rural Bank in their
last Farmland Values Report.
“With the key drivers of farmland values set to
remain in a holding pattern in 2024, it is likely that the market will see a plateau in
values. There is little to suggest that there will be a widespread resurgence in
demand for farmland purchases nor a greater pressure to sell for prices below
recent levels. Rather, a continuation of firm, but not rampant, demand coupled
with ongoing tight supply should see farmland values hold near current high
levels.
“
Overview – rates
Higher rates are starting to bite the capital city housing market as inflation
continues to be sticky and further rate rises are in view. The hikes in rates have
been (to date) absorbed or dulled by savings and or having lower rates (locked in
previously). The high rates now has numerous owners under pressure, even those
who have strong equity. The AFR reports that corporate profit margins are also
under real pressure with interest rate rises and cost pressures finally hitting
companies where it hurts. Two years and one month after the rate rises started,
households (in particular) are out of puff. People are saving less than any other
time in the past 15 years. It seems the buffer is gone and we could be running on
fumes….. and in light of this, the AFR reports average home loan size surges to
record highs across the nation. However, this week prices are now stalling in
Sydney $2M home market with media reporting up to 7.5% drops in values across
the past three months. We do not think the above rate moves will effect the
general rural property market (broadly) mainly due to continued solid commodity
prices, good seasonal conditions and lower overall leverage levels.

Carbon and Agri Deals
Telstra have announced that they are re-prioritising their climate change
investments to take more direct action, moving funds away from the purchase
of carbon credits in favour of decarbonisation projects that will reduce their
footprint overall.
“Until now, the use of carbon credits has formed one part of
our climate change strategy and they have been used to counteract the
emissions that remained after achieving emissions reduction. We sourced our
credits both globally and domestically, from projects related to renewable
energy development, First Nations savanna burning activities and restoring
biodiversity, and we certified our carbon offsetting status via the Climate
Active program. We are now looking to drive more investment in reducing the
emissions of our operations rather than offsetting what remains.
”
Qantas Super has committed $200 million to agricultural investor GO.FARM to
“transform” under-utilised agricultural land into horticultural projects in NSW’s
Riverina, northern Victoria, and other parts of Australia
Ag tech focused fund Tenacious Ventures has just sec used another $18M in its
second fund. This follow the first raising $35M in its first fund. Some of their
investment to date include Swarmfarm Robotics and green ammonia
company Jupiter Ionics.
PSP has invested over $C7 Billion into Australian farming land from eggs, beef,
sheep, tree nuts and cotton. Deborah Orida PSP’s Global Head says its all
about diversification.
“ We recognise the opportunity, given the long-term
nature of our liabilities to diversify into alternative asset classes, harvest some
of the liquidity premium and provide some of the stability from
diversification.
” Thats a pretty good endorsement for our sector and we like
the diversification theme which we always strongly advocate.

ASX Listed Group Rural Funds Group may look to sell around half is stakes in
$163M of farms it owns and operates as it looks to reduce gearing mind
expectations interest rates will remain higher for longer. This follows the
recent sale of Qld irrigated properties for $39M.
” Recycling as noted above is a
constant theme in the industry but we are always surprised at the the volume
traded.
The titanic tussle for control of Rose Street Wee Waa or otherwise known as
Namoi Cotton seems to be in a holding pattern. Olam and LDC which owns
gins in some of the same valleys as Namoi Cotton has raised concerns for the
ACCC and is supported by the NSW Farmers. ACCC has stated that bidders
(Louis Dreyfus and Olam) “Both of them clearly have serious competition
issues, and that something that they need to overcome to get our clearance.
“
Woodside has invested in Monaro farmland to offset carbon emissions. The
ABC reports Woodside has bought four sheep and cattle farms in NSW for $40
million to help offset emissions from oil and gas projects.
Seasonal Conditions
The winter crops are off to a good start across the east coast however Vic, SA and
WA crops are less assured at this point in time. Planting conditions cross NSW and
SE QLD have been ideal and in some case too wet to finish seeding. Seeding has
just finished in most part with chick peas being increased in the natural rotation
given prices are over $1000 per ton. The outlook is varying with most having
different probabilities between neural and La Nina wether patterns which does
bode well for NSW and Qld east coast crops given the positive start…

Finance
We are seeing a large spread in rates and bank appetite. As we mention to many
clients, interest is your biggest expense and you need the right Banking support in
cost and function. Over this last last month we’ve been structuring agri finance
debt deals from $1.5M to $35M. If you would like a confidential rates check, chat
about the market, drop us an E-mail or text..

Changing Landscape
Like everything in life, things change however we are seeing a demand drivers
across particular agri markets that continues to support investment. This continual
change is one of the things we love about being involved in agri investment
markets. Protein demand, carbon opportunities and increasing food demand are
a few fundamentals that have supported the market to date. However, the food
for fuel demand (which has been around for some time) has gone to another level
as Governments and now markets push hard for renewable energy sources. The
majority of Australia’s canola exports end up in the biofuel market in the EU
(which is probably years ahead of us). Domestic oil refineries are planned here
and this will change the whole oilseed complex and effect all oilseeds. In effect a
huge demand point will appear taking huge amounts of current product from the
market. Potential outcomes like increased crush margins for all oilseeds, increased
local crushing and greater focus on oilseed production is likely.

Finally
We would like to extend out heartfelt thoughts to the poultry operators mainly in
the southern parts for the country who are dealing with the avian flu outbreak. No
farmer wants to see the end of livestock lives earlier than normal. We are thinking
of you.

Have a great weekend
Harvest Agents and Advisory is a Credit Representative (537917) under ACL 389328
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