It’s been a long winter but right now the cracked lands in parts of Queensland and northern New South Wales are drinking in some overdue welcome rain to break the dry spell. According to data by the Australian Bureau of Meteorology, parts of Queensland and New South Wales received the lowest rainfall on record in the last four months.
Rural Australia is welcoming this reprieve as the green shoots start to appear but the longer term impact of the recent rain on the agricultural landscape is yet to be seen.
One thing is clear though, it is better than no rain at all. What we do know is this: the impact an extended dry period is having on the overall state of the property, grain and livestock markets is real and deep.
Nervousness leads to hesitation and caution leads to inertia where people sit on their hands. This is turn leads to a downward trend in pricing for rural markets as sentiment shifts. For example, in cattle sale yards across New South Wales, it is not uncommon to see grown steers trading for $2.45/kg (October 2017). One year ago, grown steers were trading for $3.60/kg.
Across Australia, significant property assets are being offered to the market across multiple agricultural fields. It is unclear whether these offerings are because institutions have not realised anticipated returns, a consequence of dry times or just the expected return on investment is not good enough.
On the plus side, the Australian dollar weakness against the US Dollar is providing protection currently against easing prices in the wool market in recent weeks and as a result the price has remained firm. Interestingly, whilst there has been a fall in almost all aspects of the cattle market in recent weeks, lamb prices have remained strong, defying a dry time trend. In October 2017, 24kg lambs were selling at $5.85/kg, compared with $5.60/kg one year ago.
In recent years, there have been record levels of investment into the agricultural sector. For many of the new owners, the recent dry period will represent their first test of resolve. With this as the background, we believe now is a good time to take a closer look at emerging opportunities in the protein and water rights space.