Agriculture Investment Update – 16/07/2020
Agri Asset Resilience.
It will come as no surprise to those reading that the resilience of agri assets has been extremely strong in the face of one of the world’s most critical junctures as we struggle with a global pandemic. The general investment classes of shares (whilst there has been somewhat of a rebound) and residential property have borne the brunt of extreme volatility and price declines whilst agri assets have maintained strength or stability. This is even whilst we still have many regions in drought. Agri assets sales have slowed due to the drought however asset prices have remained or in some cases increased, which again reflects the value of agri assets in an investment portfolio. Fair to say that cash returns may have been poor through the drought but asset values have not had the crunch like other asset classes..
One of Australia’s largest vertically integrated agri businesses Auscott, is up for sale. The remaining assets and business offers the buyer a wonderful opportunity to attain well developed water and land assets plus the ability to process and market the product to the ultimate buyer. It today’s market, a known supply chain is extremely important to the consumer and the Auscott business offers this ability in cotton as well as other commodities and products. The land assets are diversified and the ability to attain incomes streams post farm gate just make the business an attractive proposition.
Drought management and Government support programs have moved off the front pages given the above mentioned crisis however it’s something we all have to tackle, to be better, learning from the past. Looking into many grazing enterprises over the past months, the pastoralists that fared the best in the recent drought implemented a number of management and technology programs. Two that stand out are pasture improvement and graziers forage are .
management & conservation. Australian
some of the best in the world however we think the ability to lead in these two areas will have us in good stead when the next drought arrives which is only a case of when and not if. We’d suggest programs (research, education, investment and tax) to support further development of pasture improvement, forage management & conservation on farms would be areas well worth Government investment and support to ensure we are really world class in these areas.
It’s at this time of year many producers ponder price risk management as we are on the cusp of a potentially good winter cereal season on the Eastern seaboard. Grain prices are above long term average prices which would be enticing to many growers as crops become assured over the coming months. It’s a difficult decision as a lot of the price action in local basis (local price against international benchmarks) will be dependant on local weather conditions. Price support comes from International benchmark prices which are on a run (now), the Australian West Coast crop is dealing with dry conditions and East coast grain stock levels are still extremely short. Given the above factors, most will probably wait to see if we get the important rains over August and September to assure a crop before marketing grain. However, we would only generally advise that if a grower was comfortable to lock in price on a small proportion of grain, just to cover cash flow needs at harvest with the view that if it was your worst or lowest sale, you’d be a happy farmer at year end. We all have sold grain at low prices at harvest to cover cash flow which is always a very bitter pill……
As always, we are keen to get any feedback and if we can assit you to invest or exit your agri enterprise, please feel free to have a chat. Feel free to share this update.
Have a great weekend!
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