It was another interesting, although at times challenging, year for those investing in agricultural production.
Commodity prices generally fell throughout the year in many instances (with some exceptions), but the prices for many goods are still well above historical averages.
This was offset by continuing strong demand for high-quality produce, which was a boon for Australia and a positive for North American producers, too (even if the latter markets are generally less export-oriented).
And even if forecasts suggest that US agricultural exports will fall this year and Australian agricultural production will decline, both are still near-record highs and look very healthy compared to many years in recent memory.
The outlook for 2024 is somewhat mixed but is perhaps more positive than some would have thought six months ago.
In Australia, where there was some concern about the potential for climatic conditions to worsen considerably during the El Niño period, the worst projections look set to be avoided. In fact, the country’s Bureau of Meteorology is now forecasting average rainfall over the summer months (which may not be enough for some but is better than the potential for widespread drought that others feared).
Economic headwinds seem likely to persist, though, regardless of which geographic region you invest in.
Interest rates, even if they are cut in the US early next year, will still be relatively far higher than at any time in recent memory. And costs for many inputs, such as fertilizer and labor, remain elevated.
We have seen signs that farmland prices may finally be ending the huge run-up they have been on over the past several years – and even if prices do not go backwards, some moderation in growth will affect capital returns for some.
Fundraising has proved hugely challenging, too, as it has in almost all private markets asset classes in 2023. Agriculture has been no exception and it is an open question as to whether this will ease in 2024.
But overall, it has been a decent year for most participants in the market that have given feedback to us at Agri Investor.
The fundamentals of investing in the asset class remain unchanged and it is an investment that favors long-term, patient capital that is willing to look past short-term volatility in commodity prices or year-to-year changes in asset values.
Backers of the asset class will tell you that assets performed well during the uncertainty of the pandemic and have continued to do so during the uncertainty that has reigned since.
We hope this can continue – and that a rest over the Christmas break will give readers an opportunity to recharge and enter the New Year with renewed energy to meet the challenges that these types of assets throw up.
This is the last Weekly Letter for 2023 – we will be back on January 4 with our next edition.