Supply and demand
Some of Australia’s major commodity prices are now trading at historic highs. Most notably, beef the nation’s biggest single commodity subsector. However, both beef and sheep are undersupplied and have really strong demand characteristics which is driving prices up.
That means today's price points will likely stay in the high range over time. And while that attracts a lot of confidence, some farmers are facing issues as they try and restock at high prices and it can be a long road to rebuild herd and flock.
Anecdotally, we’ve seen land prices starting to outstrip some of the yield but there are still really healthy margins and strong levels of profitability. As long as that remains and there’s an appetite for investing in Australian farmland, it makes for a pretty positive sector.
If we think in financial markets, long-term often refers to three, five or seven years. However in farming, long-term is generational or more than 10 years when considering investment horizons. It’s a uniquely long-term driven industry which makes it dangerous to consider land in short-term cycles because it's very hard to predict.
In that context, benchmarking becomes even more important to get a feel for where the midpoints might be or what is reasonable to expect from a farm over time.
As farming becomes more specialised farmers need to be great producers as well as great at managing marketing, finance, relationships and strategy. And as bankers we need to have high levels of understanding of all of these things to be able to make good decisions with our customers.
Mark Bennett is Head of Australian Agribusiness at ANZ