It appears that agriculture has hit a purple patch and the rural property market, like rising commodity prices, is finding new highs.
It is a unique cycle and the key drivers are low interest rates, strong commodity prices and favourable seasonal conditions said Brad James, Rabobank’s Regional Manager for Southern QLD and Northern NSW.
While not every rural producers season is on par, things are still reasonably good and being spurred on by the hike in commodity prices led by beef, grain, cotton and also sugar according to James.
This general alignment of the planets is also backed by a willing banking sector, who is showing great faith in the future of the agriculture industry. Certainly at least that is the sentiment of Rabobank.
James said there is a lot of emphasis on growth, through both on farm investment and expansion into further holdings.
“The property market is going strong and it is difficult to pick where the top point is, particularly in the beef sector as people seek to expand their business and rebuild their herd numbers as prices hit 30 year highs, in relative terms.
“It’s a rare event when the market goes up in contrast with low herd numbers, both domestically and globally and that has helped build the confidence in the land market.”
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Planning to expand
With the keen focus on growth and expansion across agricultural operations, James said it is important to weigh up your options and to have a plan before committing to buying that new property or indeed embarking on major expansion plans that see the enterprise needing to increase debt.
“While the first instinct may be to buy more property so you can grow and expand your operation, as a business it is also important to consider how well placed you will be if there is a correction in markets, a lift in interest rates or a missed season… or heaven forbid, all three.”
“Consider what your appetite for risk is and how well you have mapped out the expansion plan and importantly also consider the risk appetite of other key stakeholders in the business.”
“With so many vagaries to manage in agriculture, most of these out of the producers control, it is important to be agile and prepared to change and open to new thinking or ways of doing things that may be needed to manage through adversity. This applies in a range of commercial (non-farm) businesses also.”
“It is also important to keep a close eye on the level of gearing the enterprise is being asked to manage/service when expanding,” James said.
“This is a highly sensitive ratio to manage when we have escalating land prices, as we have now. The large fixed expense associated with the acquisition of further holdings is serviced by the many variables around the income stream as mentioned. This is why gearing is such a focus point.
“As we all know, it takes time to build the herd and develop country, these should all be part of your business plan.”
James said the impact of an adverse circumstance can vary and some we cannot foresee nor avoid, but if we have a line of sight on the early warning signs and take an agile approach then we stand the best chance of moderating the impact.
“There is one certainty in all of this, those enterprises with the highest relative levels of gearing feel the impact the most. So keeping up to date with market and commodity trends and knowing when to engage that ‘what if’ strategy is key,” he said.
James said the current hike in confidence across agriculture was likely to create some ground breaking innovation in farming, particularly for the beef industry who are enjoying very strong returns, this is often associated with reinvestment into technology and efficiency gains.
“What we are seeing is people reinvesting in their industry with the confidence that this will improve their long term efficiency and in the end profitability,” he said.
“We can expect to see efficiency gains across management practices, pasture development, livestock handling, use of drones, carbon farming, rotation grazing and regenerative agriculture.”
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“This could be the catalyst for a road map for the future as producers look to take advantage of this current trend,” said James.
“There are so many tremendous opportunities in agriculture at present and with a measured approach, many can avail themselves of the unique circumstances to develop and grow in what we consider to be among the best agricultural lands and enterprises in the world.”
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Article source: inqld.com.au