Agribusiness turns back on recession
June 24, 2009
The agribusiness sector has recorded its third consecutive month in positive territory, according to the Commonwealth Bank.
The June Commonwealth Bank Agri Indicators Report reveals that the Agri Index rallied to post a return of 19.1 percent over the past three months.
During the past month, the sector delivered a total return of 1 percent, its third consecutive month of positive performance.
Commonwealth Bank Regional and Agribusiness Banking Executive General Manager, Brendan White, says the agribusiness sector has a number of positive factors in its favour and an optimistic long-term outlook.
"The performance of the Agri Index this month once again highlights the resilience of the sector in these challenging economic conditions," he says.
After the departure of Great Southern and Timbercorp from the Agri Index, it continued to deliver a positive result due to the strong performance of the Australian Wheat Board, ABB Grain and Incitec Pivot.
Average farm cash incomes for beef properties in northern and southern Australia are projected to increase by nearly 50 percent and 60 percent respectively in 2008-09, according to a new Australian Bureau of Agricultural Research and Economics report.
"The 2009/10 Australian wheat crop forecast at 22 million tonne is up slightly from last year and above the prior seven-year average of 19.5 million tonne. This increase in wheat production is expected to be associated with an increase in exports," White says.
"Improved yields in southern New South Wales, Victoria and South Australia is also seen supporting production.
"These factors, together with this month’s Agri Index, point to a more promising outlook for Australian farmers and investors in the agribusiness sector."
White says seasonal conditions for farmers across the country, while varied, remain generally favourable.
"Seasonal conditions and general weather patterns in the majority of regions in South Australia, Western Victoria, Central to northern New South Wales and southern Queensland have proved favourable," he says.
"Some areas of Western Australia, southern New South Wales and northern Victoria have had low autumn rain, however, late May and early June falls significantly improved the situation and allowed planting to progress."
On a risk-adjusted basis, the listed agribusiness sector is broadly in line with expectations for consumer staples and financials sectors.
Forecast volatility remains high for the sector, at 29 percent for the next 12 months, signalling to investors to remain cautious in the near term.
"The June Agri Indicators Report confirms that while the market will remain volatile the listed agribusiness sector is weathering the challenges of the global financial crisis," White says.
"Although this may present strong buying opportunities, investors entering the market in the coming weeks should do so cautiously."