Australian agriculture faces a tough year ahead despite high prices
Food & Agriculture
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Australian agriculture has done it tough in recent years and 2020 is expected to be another rough year.
In its 2020 Agribusiness Outlook, Rabobank warned that the current conditions including the drought and bushfires would persist in the months ahead.
“Many farmers entered the current drought in good shape, after an extended run of good seasons and prices enabled them to build equity buffers,” Tim Hunt, head of food & agribusiness research, said.
“However, after poor seasonal conditions over the past three years, the sector is in a tough position heading into 2020.
“2019 was marred by drought, fire and flood. It was the driest year on record, compounding the drought already being experienced by the eastern states in the years prior.”
Hunt said that while recent rainfall across drought-affected regions had brought some optimism, farmers would need continued rain to replenish soil moisture and break the drought.
“Low soil moisture and feed shortages are widespread, while key water storages in the southern Murray Darling Basin are at their lowest levels in a decade,” he noted.
“And bushfires have also caused localised damage and disruption.”
But one positive is that high prices are forecast to continue. Hunt pointed to pork as an example, with China expected to continue ramping up imports in light of the swine fever crisis.
Milk, beef and dairy are also expected to benefit from high prices, but cotton is expected to be hit by the drought.
Which ASX small caps are playing in the field?
ASX small caps in agriculture have been a mixed bag in the last 12 months. Overall, the sector is down, but there were a handful of gainers.
The best performer in the last 12 months has been almond grower Select Harvests (ASX:SHV), up 43 per cent. In the 12 months to September 30, 2019 it reaped a strong crop of over 22 million tonnes and a net profit after tax of over $50m.
Next is Webster (ASX:WBA), one of Australia’s oldest companies, founded in 1831. It is up 37 per cent in 12 months but is currently in the process of trying to delist from the ASX.
Other stocks are feeling the pinch of drought and low commodity prices.
The ASX’s only cotton stock Namoi Cotton (ASX:NAM) is down 19 per cent. It undertook a restructure last year which involved redundancies.
The worst performer is Abundant Produce (ASX:ABT), which makes vegan-based face cream.
It’s been flat for several months after a poor run in sales during 2018. Abundant’s latest quarterly promised better times had come with solid sales growth in the December quarter.
| Code | Name | Price | 1 Year % Return | 6 Month % Return | Market Cap |
|---|---|---|---|---|---|
| SHV | SELECT HARVESTS LTD | 8.38 | 43 | 13 | $810.0M |
| WBA | WEBSTER LTD | 1.99 | 37 | 41 | $719.1M |
| WNR | WINGARA AG LTD | 0.295 | 18 | -2 | $31.3M |
| ELD | ELDERS LTD | 7.27 | 16 | 0 | $1.1B |
| AAC | AUSTRALIAN AGRICULTURAL CO | 1.09 | 1 | 4 | $675.1M |
| GNC | GRAINCORP LTD-A | 8.28 | -10 | -3 | $1.9B |
| NAM | NAMOI COTTON LTD | 0.31 | -19 | -5 | $43.5M |
| DBF | DUXTON BROADACRE FARMS LTD | 1.13 | -20 | -4 | $49.8M |
| WOA | WIDE OPEN AGRICULTURE LTD | 0.125 | -21 | -18 | $8.8M |
| RIC | RIDLEY CORP LTD | 1.045 | -22 | -6 | $236.8M |
| AHF | AUSTRALIAN DAIRY NUTRITIONAL | 0.097 | -30 | -25 | $35.6M |
| CGC | COSTA GROUP HOLDINGS LTD | 2.785 | -47 | -26 | $1.1B |
| ABT | ABUNDANT PRODUCE LTD | 0.067 | -63 | 6 | $5.5M |
