• Single managers that invest directly in a range of farms across agricultural sub-sectors;
• Land trust managers who pool investment funds into a farming property or properties, but lease the farm operations out to specialist providers;
• Private equity-style managers who buy equity stakes in businesses exposed to agriculture, such as food-processing facilities or irrigation infrastructure projects; and
• Funds managers who specialise in managing agricultural stock portfolios.
From these options, Frontier prefers the direct methods, but given the immaturity of the investment marketplace for agriculture, it advises that accessing the sector through equities is the more reasonable approach. This allows investors to access various sub-sectors and geographies, provides regular market valuations of investments and, because the holdings are more liquid, to better adapt to changes in markets. However, listed agricultural securities generally have a higher correlation to equities markets, are subject to more pricing volatility than unlisted assets and have less access to real farm properties, Frontier notes.
Australian Agribusiness Group’s Tim Lee says that in the short-to-medium term, agricultural producers, which returned minus 11.9 per cent in the year to June, will make a comeback in the Agri Index. “They’ve been hit hard by the drought, and as the drought eases, as it has started to, crops will improve, particularly the grains and oil seeds.”
The manufacturing sector, which produces fertilisers, herbicides and other products, boomed in the same period, racking up a growth of 92 per cent. The price of fertiliser has been carried upward in value by the rising oil price. Of these stocks, Incitec Pivot stole the limelight by jumping 132 per cent in value.
Other companies that have done well out of the surge in soft commodities prices include Australian Wine Holdings, Clover Corporation and Nufarm.
Most agricultural companies listed on the ASX seem to focus on services and industries that are at least one step up the supply chain from farm production, Frontier comments, and many of them are small or microcaps. The recent outstanding performance of fertiliser and agricultural chemical companies, and the underperformance of producers, indicates that different parts of the agricultural supply chain will deliver different returns in various market conditions.
