The market place for large scale pastoral properties has deteriorated since the highs of 2008 culminating in a relatively subdued market place. The deterioration has been due to a number of factors including the decreased availability of finance on an equity basis which is resulting in significantly extended time periods to achieve finance for pastoral properties; as a consequence the supply of properties available for sale in this sector has increased significantly over the last 5 years.
Whilst the number of properties on the open market is relatively substantial, recent activity indicates 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 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) and several Kimberly properties (at the lower extreme of the market place) as evidence the market has seen the worst of the conditions in this industry cycle.
The recent capping of numbers and weight restrictions on live export cattle added to the nervousness of the market and whilst not directly influencing property values, added to the uncertainty in the market place. This change combined with the introduction of a permit based live export market will require changes in management but going forward should lead to a more sustainable market place with improved product prices.
With regards the permit based system we comment that Indonesia has started releasing permits for an additional 100,000 feeder and slaughter cattle providing significant competition for north Australian cattle.
The immediate outlook in this sector is very positive and the likelihood is the lack of supply as a result of the industry suppliers gearing to the weight limitations introduced after the live export ban, will result in higher FOB values. 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. Assuming no further upsets on the political front.
The sales that have occurred have been by willing / anxious buyers and at price levels around 25% – 40% below the highs of 2008, depending on the individual circumstance of the sales. The market has the perception that such benchmark levels of value are now the market. 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.
This perception has been more pronounced in the more northern properties which are wholly reliant on the live export market and have geared their operations to that market. 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 Amburla, Hamilton Downs Marqua, Huckita, Argadagada and Henbury (currently for sale with receiver appointed) as evidence that there is still relatively strong demand for such central Australian properties which are generally limited by seasonal conditions.
Several factors are likely to influence any further reductions in value, these include the increasing supply of properties available for sale, generally as a result of the limited number of sales and the tightening of finance criteria to a cash and productive capacity assessment rather than an equity based lending environment; any
further international financial turmoil or worsening of the flow on effects of the GFC.
The current market place has progressed through significant turmoil in recent times and all things considered appears to have bottomed or reached a level close to a new benchmark level of value assuming most factors affecting the values achieved in this sector remain in equilibrium. The next phase in this cycle is likely to be the implementation of a number of forced sales by financial institutions; these will lead to discounted prices but will also bring buyers back to the market place indicating the bottom of this cycle.
We comment that whilst the saleability of all properties in this market sector is still poor at present. We comment that well held corporate properties of a prime nature, which require corporate or institutional funding or purchasers appear to be becoming far more active generating an almost 2 tiered market place in the farming sector, again this is highlighted by the return to the market of AACO with the purchase of Labelle and Welltree.
We note that whilst the federal government lifted the ban on live exports, this ban, albeit short lived, had an impact on the already fragile industry however going forward we consider these factors will create a more sustainable marketplace with higher product prices likely. This aspect of the market has a pronounced effect on the subject as the beef produced is typically aimed at the live export market.
Sentiment within the Industry is that whilst the implementation of a registered permit based export system and weight restrictions have initially had significant impact on the industry, these are conditions that have been in place in other agricultural market sectors for many years and more recent changes within the political landscape have lead to a significant easing of these market restrictions.
We consider that going forward the implementation of such conditions can only benefit the market place as a whole and as with any restrictive conditions can only lead to higher sustainable values in the longer term.
AACO Abattoir, Livingstone, NT
We believe the outlook for long term prices in this industry is positive, most market indicators for the short term future of the beef industry have been lacklustre however a changing political landscape has brought new hope to the industry.
We note that the market in the pastoral sector is generally weak at present however the underlying aspects of the market and recent activities in north and Western Queensland and the NT suggests buyers are returning to the market. Low marketability is not necessarily a reflection of the subject property rather it is a reflection of the whole market place.
The whole of the industry is facing a number of significant marketing and production issues at present, culminating in a particularly volatile market place where selling periods in the general market place are significantly extended from those prior to 2008. We comment that large discounts in this sector continue to be expected under the current market conditions where there is pressure or MIP circumstances on a sale or the marketing period of a property.