The long term outlook for Australian agriculture after COVID-19
A lack of resources is a major component of the current crisis. As people stay home from work and borders shut, the disruptions to global trade are causing a massive shakeup.
A lack of resources is a major component of the current crisis. As people stay home from work and borders shut, the disruptions to global trade are causing a massive shakeup.
While it’s impossible to predict winners and losers, stocks in staple food producers are considered by many, a defensive investment right now as they are not correlated to the equity market. Supermarkets are an example, including Coles which reported its best-ever performance on the stock market.
The importance of food in any crisis can’t be understated. It’s a sector that will continue to have to meet demand. Last week, the US gave its agricultural sector a $9.5 billion stimulus package in addition to a $14 billion credit scheme, in an attempt to correct losses in the short term.
The long term outlook for agriculture is strong. According to a FAO report, total food use is expected to grow steadily over the next decade at rates of 1.2% p.a. for cereals, 1.7% for animal products, 1.8% for sugar and vegetable oils, and 1.9% p.a. for pulses and roots and tubers. Meat consumption is forecast to grow by 40 Mt by 2028. Meanwhile, Australian lamb prices are at five-year highs, despite the market crashing.
Asia will continue to need Australian produce
Australia usually exports 75% of meat and China takes the lion’s share. Although the lockdown across China has led to softer demand for Australian meat, Rural Bank expects it to be temporary.
David McNamee, a portfolio manager at Altor Capital, said that high-end products will be in major demand in Asia for at least the next 10 years.
Last year, African swine fever wiped out a quarter of global pork production. Asian producers were hit hard. The outbreak caused distrust of local meat in Asia. Given COVID-19 could also have originated from the meat industry, it could prove difficult for Asian pork producers to recover their reputation.
The market might look to Australian meat instead.
“Australia’s high-quality produce is forecast to increase. Consumers in China have already begun avoiding the traditional wet markets in favour of online businesses and supermarkets,” stated IBISWorld in a report on coronavirus.
As a breed, Dorpers are perfectly suited for the Australian climate. Even in drought, they hit target weights without supplementary feed, reach reproductive age sooner than other sheep and 70% of pregnancies produce twins. Farmers can double their Dorper flocks in one year whereas this takes five years for other breeds.
On top of this, Australian food safety is outstanding and there are only few international competitors in this field.
Australian Food and Farming is one company well positioned to perform during and after the pandemic. They are targeting becoming the lowest cost lamb producer in Australia. Lamb prices are not correlated to the equities markets and are in fact sitting at five-year highs. With growing populations globally, and increasing demand for protein, the long term outlook for lamb is strong.
To learn more about the investment opportunity with Australian Food & Farming, please click here to request the PDS.
Reach Markets have been engaged by Australian Food & Farming to assist with private investor management and are the advisors assisting with the management of this offer. Reach Markets may receive fees depending on whether an offer is taken up by investors.
Sources:
- Dairyreporter: US Congress passes $2 trillion stimulus package, with $9.5bn for agriculture
- Globalmeatnews.com: Australian red meat industry vows to ‘rise to the challenge’ of coronavirus
- Farmonline.com.au: Bush towns get set for virus crisis
- Globalmeatnews.com: Global meat industry reacts to coronavirus pandemic
- Stockhead.com.au: A COVID-cure served hot: Ag-stocks that’ll get you through the worst
- OECD-FAO AGRICULTURAL OUTLOOK 2019-2028 © OECD/FAO 2019
- IBISWorld COVID-19 Economic Assessment
This Weeks News
July 8, 2020
July 8, 2020
July 8, 2020General Advice Warning
Any advice provided by Reach Markets including on its website and by its representatives is general advice only and does not consider your objectives, financial situation or needs, and you should consider whether it is appropriate for you. This might mean that you need to seek personal advice from a representative authorised to provide personal advice. If you are thinking about acquiring a financial product, you should consider our Financial Services Guide (FSG) including the Privacy Statement and any relevant Product Disclosure Statement or Prospectus (if one is available) to understand the features, risks and returns associated with the investment.
Please click here to read our full warning.
