Stable production volumes and prices coupled with well understood risks contribute to rural and agribusiness sector being a safe investment
The rural and agribusiness sector is now included in investors’ long term strategies as the sector develops hallmarks of high investment grade assets, according to the latest Rural & Agribusiness Research and Forecast Report by Colliers International.
Shane McIntyre, National Director of Transaction Services at Colliers International said the falling Australian dollar, free trade agreements with major Asian partners and the overarching driver of food security have had a discernible impact on the market, with a number of rural regions and sectors beginning to experience growth in land values.
“Investors are drawn to rural and agribusiness assets in pursuit of stronger yields, as the market becomes short of opportunities in traditional asset classes.
“The momentum is expected to continue into 2016 as we experience growth in enquiry at all levels ranging from the private landholder through to institutional investors. The spotlight this year is on beef, cotton and water sectors.
“We are also seeing an emergence of third parties who are financing production with no direct investment as sector becomes increasingly sophisticated. Outside of third party investments, transactions have continued to occur at increasing realisations and compressed yields.
“Falling Australian dollar is reducing margin pressure on producers reliant on export markets and a raft of free trade agreements is reducing price premiums of Australian products on foreign shelves.”
Water market – building momentum
Mr McIntyre said the Australian water market is on the global stage with our Murray-Darling Basin being one of the most established markets in the world.
“Throughout 2015 investors have increased holdings in the water sector due to increased demand in a period of drier conditions. This has pushed the weighted average price by $1,000/ML in the second half of last year. Global water use is projected to grow twice as fast as oil consumption by 2030.
“We are expecting that water entitlement values will remain high for the next 12 months underpinned by increased demand for water from recently established permanent tree crops as they expand and mature.
“Further upwards pressure will come from continued low inflows that are expected as El Nino conditions persist until the second half of 2016.”
Cotton industry – productivity gains to drive value
“This industry has now become favoured by corporate investors due to its strong property rights in water and land, high quality management, globally recognised high quality cotton and very efficient production systems.
“Australia’s record water efficiency and increased cotton production in comparison to the rest of the world makes this sector now even better value to invest in. The market is also benefiting by the falling Australian dollar to the US dollar, in line with the decline in hard commodity values globally.”
Beef market – large private investors step up
“Last year was a turning point for Australian beef industry. Record prices were achieved for producers in southern markets in conjunction with unprecedented demand from existing and emerging export markets that are currently supplied by northern Australia.
“We are seeing an increase in exports like never before influenced by the global demand, weakening Australian dollar, shortage of breeding stock and recent rains in previously drought affected areas.”
“The outlook for both Australian and New Zealand agricultural produce is positive. Global markets have increased respect for our food standards and are willing to pay premiums for quality.
“Bullish expectations of agriculture are forecast to maintain, as our primary producers relentlessly search for increased margins. As a result we expect rates across all catergories to steadily grow throughout 2016,” said Mr McIntyre.