Agribusiness Market Commentary

The AACO Abattoir Darwin

 The AACO Abattoir Darwin

Whilst the market place for all pastoral properties has deteriorated since the highs of 2007-2008 the present market place is returning to equilibrium at a lower, sustainable value level with a significant number of sales and contracts occurring over the last 18 months.

The number of properties available for sale on the open market has reduced significantly and astute buyers are returning to the market place having considered the market to be at the lowest expected point in this cycle. With respect to the current market activity, we site the recent sales of Douglas, Moroak, Elizabeth Downs, Bunda (sold to Terra Firma – Adjoining owner), Willeroo, Amungee Mungee (private sale), Labelle and Welltree (under appointed receivership), Riveren and Inverway (sold as an aggregate parcel), Forrest Hill (sold to Thames Pastoral as an active overseas consortium purchasing entity), Culvert Hills (sold to Queensland Pastoralist), Maryfield (Sold MIP), Killarney and Birrimba (distressed sale), Pine Hill (Sold MIP), Dnepier, Henbury, Glen Helen / Derwent and Yacka Munga as evidence the market has seen the worst of the conditions in the current cycle and is returning to somewhat of an equilibrium with positive outlooks for value growth.

The immediate outlook in this sector is very positive and the likelihood is the lack of supply of cattle as a result of the industry suppliers gearing to the weight limitations introduced after the live export ban, will result in higher FOB values. This is already being seen with a number of forward contract for supply at over $2.40 -$2.90 per kilo, live export weighed. The number of cattle demanded is above that which can be readily provided at this stage and a restocking program across this industry will lead to further shortages of supply and increased values FOB. This resurgence is being assisted greatly by the new federal and state government parties whom have shown the way to strengthening international relations in this sector.

The sales that have occurred have been generally distressed (to varying degrees) and at price levels around 25% – 40% below the highs of 2007-2008, depending on the individual circumstance of the sales. The market has readjusted to the new benchmark levels of value which are now the market norm. This is generally supported by most recent activity in this sector which is likely to continue whilst the vendors, purchasers and financial institutions adjust to the new value levels and the supply of available property is extinguished.

We note that the market for more central properties which are less reliant on the live export market and more orientated towards the Australian Beef market is still relatively strong and note the sales of Dnepier, Pine Hill (distressed) Marqua, Huckita, Argadagada and Henbury (sold with receiver appointed) and the recent contract over Glen Helen and Derwent as evidence that there is still relatively strong demand for such central Australian properties which are generally more limited by seasonal climatic conditions, the most recent summer rains in the central region have provided significant relief from the lack of 2013-14 rains supporting a good coming season.

The current market place has progressed through significant turmoil in recent times and all things considered appears to have passed the worst and set a new benchmark level of value assuming most factors affecting the values achieved in this sector remain in equilibrium a new phase of growth is anticipated. This is supported by the significantly improved FOB values currently offered. Sentiment within the Industry is generally at its most positive since the GFC in 2008 and such sentiment is supported by some of the most favourable market conditions since the mid 2000’s. Key factors including saleability, interest rates, input costs, produce value, seasonal conditions and forward government policy, all suggest a highly optimistic outlook for this sector.

Whilst the recent permits issued by Indonesia has been reduced to 50,000 head for the July Quarter this is on the back of significantly higher exports YTD, further there is a high probability of an increase to those permits during the quarter. This reduction in export permits to Indonesia has paled when we consider the recent announcement of a possible live export market to China opening up, this is a significant development for the industry and likely to lead to further price increases in both produce prices and market value.