23 April 2015
Andrew Marshall
The Land
AFTER more than four years in the doldrums, beef is back on the rural property investor’s shopping list and mainstream farmland price signals are finally showing some signs of revival.
Subtle changes in inquiry activity in the feedlot sector also suggest lot feeding is growing in its strategic importance for investors already aligned with meat processing, or marketing and retail ventures.
Despite a backlog of potential sales waiting in the wings in most regions and land valuations still far from “revved up”, the agricultural property market has, at very least, stabilised and stopped sliding says Australia’s biggest property valuation and market advisory group, Herron Todd White (HTW).
Fuelled by a falling Australian dollar and cheap borrowing rates getting even cheaper, the recovery in buying sentiment has been particularly evident for grazing properties nationwide, especially in northern Australia’s pastoral market.
“In the Northern Territory nothing was selling 18 months ago, now it’s almost as if there’s nothing left for sale,” said HTW’s national rural director Tim Lane.
The surge of renewed interest in beef, and grazing holdings in general such as dairy regions and the NSW tablelands, was in sharp contrast to the mood between 2010 and 2014.
Centred on cropping
For four years most buyer inquiry and sales activity centred primarily on cropping country, particularly if foreign investors were shopping for farms.
The Territory and Western Australia’s Kimberly had lately seen three foreign buyers underpinning the market, including China and Indonesian investors, a resurgence in beef industry confidence from expanding Indonesia’s live cattle market and growing beef export alternatives such as Vietnam and Darwin’s new abattoir.
Following on from the dramatic pastoral price slump triggered by the global financial crisis (GFC) and a run of recent tough seasonal conditions, Mr Lane said the northern sales drought had now definitely broken since mid 2014.
After about 15 significant Territory transactions, little was now being advertised for sale.
Activity behind the scenes suggested more Top End sales or new uses for pastoral land – including a prawn farm harvesting 1000 tonnes daily – may be imminent.
However, Mr Lane noted northern land values were generally starting their current revival at about 2006 price levels.
In fact, after the dramatic price highs of six or eight years ago which nationally lifted farmland values about 15 per cent in 10 years, then a post-GFC slide of 5.2pc, values Australia-wide for properties above 2000 hectares now appeared to be equivalent to 2005-06 levels (based on long-term median price trends).
“From a transaction perspective, the trend seems to be back to ticking along in the right direction with more positive execution of auctions at solid value levels,” Mr Lane said.
“Overall the trend for property values seems to have found a good base, but you can still have some auctions where nobody makes a bid.”
A better investment
He told a HTW rural market update in Sydney the global investment fund market was also tending to pay greater attention to agriculture as a specific asset class, which was prompting a new level of investment diversification inquiry and capital profile coming into Australia – patient money looking to make 20-plus year commitments.
The Australian farmland market’s attraction was helped by the prospect of a 2pc (or more) annual return on capital compared to US investment bonds at 1.8pc (or less).
Lower fuel costs and positive sentiment about free trade agreements with Japan, South Korea and China were also helping to improve market tension among potential local and international buyers.
However Mr Lane said foreign investment diversifying into Australian agriculture might include buying into off-farm services or supply chain businesses
While the beef grazing sector had probably seen more inquiry activity in the past six to eight months than the previous six years HTW had observed a new appreciation of beef feedlots and their value in guaranteeing enough consistent quality product to feed export and domestic supply chains.
“In some cases newer players in the meat industry don’t want to be limited to just one component of the supply chain – they want to integrate their investment,” he said
“They’re thinking of getting value from a farm production holding, value-adding it with a feedlot investment or a feedlot relationship, and being involved at the off-take end.”
Lot feeding sales spike
No sales have settled lately, but HTW’s feedlot analysis specialist Doug Knight says the sort of inquiry evident in the market since late 2014 suggested a spike in potential sales of lot feeding facilities, or an expansion phase for existing sites.
“Despite the past year’s big lift in cattle and grain feed prices, there has been new interest in feedlots because the medium- to long-term outlook for beef markets is climbing so strongly,” he said.
Sites most likely to change hands would have capacity to handle at least 7000 head and have steam flaking facilities for feed grain.
However smaller 5000 head (or smaller) family farm-sized ventures could also attract new buyers looking to diversify into farming investments or aggregate several farm enterprises into large-scale grain and livestock enterprises.
Existing corporate beef players were always interested in new acquisitions at the right price, but they had to be strategically located, with ample access to water.
Newer investors would most likely be interested in existing facilities, especially if the sites already had regulatory consent to carry more cattle than they currently had capacity for.
“It’s much cheaper to buy some sort of established facility than going through the process of building a operation from scratch.”
Courtesy of The Land