Australian ag looks set for another good year

Rabobank published its annual Agribusiness Outlook last week, assessing the prospects for the sector in Australia in 2021 – and it paints an optimistic picture overall.

The headline of the outlook is that Australian farmers (and thus investors) are set to enjoy a profitable year thanks to continuing favorable weather conditions, strong commodity prices and low interest rates, all while taking into account the threat posed by the ongoing trade dispute with China.

The bank expects most commodities to enjoy a decent year, with global demand for food and fiber supporting prices, and rainfall in the eastern states bolstering crops.

The latter has also helped ensure the outlook for land prices – a particular area of interest for ag investors – has improved in recent months.

Rabobank agricultural analyst Wes Lefroy writes in the report that the larger-than-anticipated size of the Australian winter crop will boost operating profits, ensuring farmers have the purchasing power to expand and the ability to service existing debts.

In addition, the pandemic had a much smaller impact on farmer revenues and confidence than Rabobank initially anticipated.

“In line with the production outlook, rural confidence skyrocketed during the fourth quarter to the highest point nationally since March 2008… while investment intentions are at the highest point since Q2 2011,” Lefroy wrote.

“The covid-19 crisis has reaffirmed the attractiveness of ag land as an asset class, which we expect will continue to support inflows into Australian ag land,” he said, with foreign investment also set to rise in the medium term despite the increased scrutiny being placed on overseas investors by the Foreign Investment Review Board.

There are headwinds, of course: producers have three major transitions to continue navigating in 2021, but the Rabobank view is that good profits this year will help smooth the process.

The sector will need to find ways to thrive during the global pandemic recovery as governments begin to withdraw stimulus measures, exporters will have to reduce their reliance on China given the events of 2020, and opportunities and challenges will continue to present themselves due to the need to more robustly report ESG performance.

But even with that on producers’ minds, it is shaping up to be another good year for Australia’s ag investors, adding to the body of evidence to show that the asset class is a useful diversifier for any portfolio with patient capital.