You Should Include Australian Agriculture In Your Investment Portfolio

Most of investors would think of equity(stocks) or fixed income(bonds) when they are asked for investments. There is no doubt that equity market is bullish for last decade, evidenced by record-high index. However, investors experience loss due to unexpected market shock. 

To diversify an investment portfolio away from traditional investments, which consequently reduces overall portfolio risk, more and more professional investors include alternative assets such as agriculture in their portfolio. Alternative assets provide additional advantages to the traditional investments.

Portfolio Diversification

Alternative investments typically have a low correlation to more traditional asset classes, therefore provide an opportunity for portfolio diversification, reducing overall risk exposure across investments. Many alternative assets also provide a hedge against inflation.

Enhancing Returns

Investors have been drawn to the potential returns offered by alternatives throughout history. Alternative assets have the potential to offer much higher returns than their traditional counterparts.

Australian Agricultural Investment

Agriculture is a growing asset class amongst the investment community and generally forms part of a real asset portfolio. Today, Australian agriculture is an important solution to the global environmental challenges, and Australian agriculture can be a long-term tenable investment to meet future global needs.

In the 2008 downturn, Australia’s agricultural assets were one of a few asset classes that demonstrated resilience and even growth. Farmland has proven to be a reliable store of value in times of economic turmoil, including drought, fire and climate change. While financial markets and traditional asset classes have experienced volatility, the impact on Australian farmland values has been minimal.

Pandemic has damaged many industries dramatically such as aviation and tourism due to lockdown restriction. On the other side, at the forefront of consumer concern during this lockdown is the security of food. Supply and logistics of food are deemed as an essential industry and not disturbed. Increase in demand for reliable and safe food commodities contributes to the robustness of Australian Agriculture and the pandemic has brought spotlight to it.

Australian agriculture is a safe, low-risk investment with a transparent regulatory environment, along with long-term growth opportunities.

Low-Risk Investment

With AAA sovereign rating, Australia is an attractive country with low sovereign risk to invest in, and this is true in general of Australian agriculture. To those abroad, it is seen as attractive as a developed, demonstrably competitive producer of agriculture products. In addition, the opposing seasonal production systems contribute to the diversification of global agriculture.

Increasing Land Values

According to the recent Rural Bank Australian Farmland values report, the median price per hectare of Australian farmland increased by 13.5 per cent in 2019 to $5,271 per hectare. This marks the sixth consecutive year of growth, bringing the 20-year compound annual growth rate to 7.5 per cent.

Attractive investment return with low volatility

Increased market volatility has forced investors to search for assets that will be resilient. From historical statistics, Australian agriculture has delivered competitive return, but more importantly, with lower level of volatility. As we see the impacts of Covid-19 disrupt global asset classes, early indications are that Agriculture is one of the few industries displaying stable economic outcomes.

How to invest in Australian Agriculture?

In 2019 the National Farmers’ Federation (NFF) outlined a roadmap to grow the current value of Australian agriculture from around $60 billion to $100 billion by 2030. However, Australia’s farms are held in very large majority (around 95%) by owner-operator families, indicating investors still account for small portion in this sector, which can be explained by the lack of knowledge or experience of the sector.

Agricultural knowledge investment management is quite important in impacting financial performance. Not only the people, but also the livestock and environment are required to be performing in synergy to enable true success. Key drivers for strong performance include:

·        Clear vision, goals and alignment

·        Frequent reporting and ongoing financial management

·        Understanding the business profit drivers

·        Strong operational management and performance

·        Ongoing analysis and benchmarking

·        Market and climate awareness

·        Risk management

·        Data capture and utilisation

·        Sound processes for measuring controls

Whether you’re investing for the first time in agriculture or have an existing asset and about to commence planning for the future, it is important to choose the suitable opportunities and management team.

Outlook In The Near Future

The uncertainty of economy re-open due to COVID-19 outbreak, the downward of iron ore price due to decreasing demand, and the concerns of monetary policy change from FED would cause stock market to become more volatile.

Demand for food is increasing during pandemic, especially for high quality protein such as beef, but the supply of beef is limited by limited farmlands, which drives the beef price up. Drought in the Northern Hemisphere especially in middle-west of US and Brazil leads to cow liquidation, restocking will further push up beef price. Eastern Young Cattle Indicator price doubled in two years and is predicted to stay at high level until herd restocked which normally takes 4 to 5 years.

Therefore, the long-term trend will see farmland values continue to rise, reinforced by a strong demand for agricultural assets and increasing profitability of farming operations in an environment of low interest rates and strong commodity prices.

Wharton’s Capability In Agricultural Investment

Wharton manages a portfolio of pastoral farmlands in west coast and east coast with a total area of 2,360,000 acres. With strategy of vision, Wharton acquired Agri lands in 2019 at its lowest point caused by the worst drought. Since inception, we have successfully achieved the milestone of the first stage, and we have successfully delivered amazing returns to our investors in the past two years.

With our full “Paddock to Plate” solution, our next step is to take advantage of the declining availability of agricultural land and developing our fully integrated supply chain model with a modern, high tech, best animal handling facilities Feedlot with a capacity more than 20,000 cattle, to further add value to our pastoral properties and to achieve the best product available for our investors.

With the best experts of the industry and our disciplined way of investment management, we will keep delivering outstanding results and value to our investors. If you are interested in Agri business investment or seeking for opportunities for future partnerships, please contact our team info@whartoncapital.com.au.