Shaun Hendy, Director of Valuation at Colliers International spoke at the Outback Business Summit in Brisbane recently about the agriculture crisis and recapitalising rural Australia after drought. Despite the difficulties, the future for agriculture is looking very good.
Mr Hendy said the road for farmers has been very tough over the last 8 to 10 years for various reasons:
- Drought / floods – unpredictable seasonal conditions;
- Domestic and foreign governments making decisions that impact on primary producers’ ability to earn, whether it is bans on imports or exports.
“Most graziers will be dealing with the drought aftermath by trying to restock and get their business generating an all-important cash flow. With a national herd reported to be at record lows, the supply of cattle will be restricted.
“Capital will be important and it can be raised through traditional banks, specialist livestock financiers and equity investors. Other options may include agistment management of other producer’s herds, agistment with a share of profit on sale of cattle and sale and lease back. The options for accessing capital today are more varied and can be structured to suit businesses.
“To access this capital rural producers need to be investment ready, they have to have information to provide to various stakeholders (banks and investors) such as:
- suitable business plan and structure;
- production and financial data available for due diligence;
- corporate approach to reporting and accountability of events and results to all stakeholders;
- alignment of objectives between existing owners and new investors;
- add value to each other to maintain a long lasting relationship.”
“Relevant information relating to productivity, such as stock number and weight gains, is important data that is easier to record and manage in the current age of technology. It says a lot about management when it can be produced when requested.”
Beef value trends
Fundamentals of the beef and sheep industries are good, however many areas of Queensland are still 80 per cent drought declared.
The economics of beef production, having turned 180 degrees since early last year has been a major driver. This has been influenced by a declining domestic herd as a consequence of drought, declining USA herd which is also drought affected, an increase in demand from Asia for beef and stabilising live export cattle markets in Indonesia.
The live export trade has also worked hard to reduce the reliance on single markets and traditional buyers are realising that they may soon have more competition for our beef. We need to be mindful, however that we are not the only exporters of meat and our focus needs to be on safe food and quality food.
Beef monthly price – Australian dollar per pound
“We anticipate that values are on an upward trend and the bottom of the market opportunities are gone. The improvement in values will help many cash strapped businesses access working capital so long as debt serviceability exists. We believe that values are already improving with recent transactions showing more market confidence”.