Australian agriculture is booming, but before we look at how people are investing in it – without actually buying a cow – let’s take a quick look at why it’s doing so well.
Key points:
- Prospects for Australian agriculture bright after record grain harvest and high livestock prices
- Agriculture has been suggested as a long-term conservative investment for ordinary people who want to capitalize
- Investment risks include weather events and rising input costs such as fertilizer and diesel
This summer, Australian grain farmers harvested a record crop, totaling around 61.9 million tons.
Then Russia invaded Ukraine, one of the largest grain producers in the world, and the already high prices soared even higher.
Canola exported from Kwinana in Western Australia fetches more than $1,200 per ton – up 72% from the price a year ago.
Livestock prices are also out of the ordinary.
Light steers exported alive from Darwin to Indonesia worth $5.50 per kilogramup 112% year-on-year.
Farmland prices also continue to move north.
According to Core Logic data analyzed by Elders, the median price per hectare of Australian farmland increased by 18.4% in 2021 at a record $7,060 per hectare.
Now let’s see how ordinary investors – those without farms, trucks and tractors – can participate in the boom.
However, it comes with a big caveat, as this article only contains general information.
You should consider obtaining independent professional advice based on your particular circumstances.
Buy Bulk Stocks
According to Evan Lucas, chief market strategist at InvestSMART, one of the easiest ways for everyday investors to invest in agriculture is to buy shares of agriculture-focused exchange-traded funds (ETFs) at the Australian Stock Exchange (ASX).
ETFs essentially group together several stocks with a particular theme.
Mr Lucas said it might be difficult to find an ETF specific to cattle or wheat, but there were some that focused broadly on agriculture.
Matt Dalgleish, commodity markets knowledge manager at Thomas Elder Markets, said investing in agriculture-focused ETFs was a cheaper way to dive into the sector than buying a farm.
“[They can] be relatively small nominal investments, in the thousands or tens of thousands, rather than the millions of dollars you need to get into most farms,” he said.
Real estate investment trusts
Mr Lucas suggested that real estate investment trusts (REITs) were also worth considering, as some of them “actually pack a lot of farmland” with “farm suppliers”.
“They also tend to consider owning things like processing plants,” he said.
“A lot of dairy processing plants are owned in REITs which are then leased out to your Fonterras or whoever.
“It’s definitely a space that’s arousing a lot of interest [in] because at the moment the raw materials are exploding.”
Agriculture-focused stocks
Investing directly in ASX-listed agricultural companies is, of course, another option and Mr Lucas thinks it is worth considering given the current strength of the Australian agricultural sector.
“You look at something like GrainCorp: it’s blowing up because of what’s happened in the last few weeks,” he said.
Mr Dalgleish added that it is also worth looking at companies that supply key agricultural inputs like fertilizers, which are currently in short supply.
The risks involved
Fires, floods and droughts are some of the most obvious risks facing the agricultural sector.
But Mr Lucas said input shortages and price hikes, such as those seen recently with fertilisers, diesel and AdBlue (diesel exhaust fluid), should also be taken into account, as well as the geopolitics.
“About 30% of the world’s grain supply comes from the Black Sea, which is clearly interrupted.
“Sooner or later it will come back somewhat, or other players will actually absorb that supply and drive the price down.”
The rewards
Mr. Dalgleish describes agriculture as a conservative investment.
“The agricultural sector doesn’t have the super high returns that you might get on average, for example, in equity, but it also doesn’t have the level of risk,” he said.
“It also gives you a better return than what you’re getting from, say, a bond or a cash investment right now with such low interest rates.”
Mr Lucas says farming is also a more stable investment than cryptocurrency, where younger investors, in particular, have been attracted by the promise of quick returns.
“From my perspective, you should never be looking for a quick return, because if you’re investing for a quick return, you’re more likely to see upside potential, but you’re going to see just as much, if not more, downside.
Perspectives
Mr Dalgleish believes agriculture is booming and many of its commodities have good prospects for at least the next decade.
“Especially things like mutton [because of] limited supply and growing demand,” he said.
“This [agriculture] might have a little hiccup during the next drought, but these global prospects and opportunities are quite immense. »
Mr Lucas said Australians were ‘very good at farming, so that may also be a good reason to be interested in it’.
