Australian farmers and agricultural businesses are struggling to make a keep in a market that seems all against them.
Yesterday The Australian reported that domestic beef producers are near breaking point, as debt levels continue to rise on the back of adverse weather, the high Australian dollar and the live export ban. In addition to beef producers, farming resource stocks are suffering as a result of legislation restricting trade, volatile commodity price fluctuations and the high Australian dollar, making local products less attractive to international customers.
According to the report, Queensland stations are facing a debt bill of $9 billion and in the eyes of Acton Land and Cattle Company founder Graeme Acton, “There is no profitability in the industry whatsoever and that’s why there are so high debt levels”. Mr Acton is calling upon politicians to turn their attention to stimulating the industry’s demand through free trade and raising the live cattle exports ban.
Mr Acton’s words would be heard loud and clear by many farmers throughout Australia who are facing harsh conditions because some, who are unable to sell property or products, are vulnerable to the banks taking control of their land, something which is good for no one.
Even companies who aren’t directly involved in the cattle industry are feeling more than a pinch. Elders Limited (ELD.AX) currently trades at $0.081 but in 2007 traded at over $25 per share. It’s down but shares have still managed to decrease by 64.3% this past year which is not surprising given that the company reported a net loss of $395 million for the year ended 30 December 2012.
Joining the list of troubled farmers is the Australian Agricultural Company (AAC.AX) (“AAC”) who has returned negative share price movements the past one, three and five years. The business is keen to turn around the company with its strategy to improve its operational performance through better management of its supply chain but is also planning a meat processing plant in Darwin. It’s a move that should prove profitable but it might be a case of too little too late.
Ridley Corporation Limited (RIC.AX) and PrimeAg Australia Limited (PAG.AX) have been unable to impress shareholders as the companies have fallen 30% and 22.3% this past year respectively. PrimeAg has taken measures to remove risks associated with commodity price fluctuations by creating ‘hubs’ across a number of geographic regions in NSW and QLD. This move hopes to achieve diversified commodity exposure and reduce risks associated with drought.
The company will be keen to give investors something as it reported a net loss of $1.75 million for the half ended December 2012. Ridley also offered up unhealthy results, reporting a net loss of $12.69m despite a 6% increase in revenue. Obviously the high Australian dollar is wreaking havoc for domestic products going aboard.
It’s not all bad news for Australian farmers, GrainCorp Limited (GNC.AX) has recently been upgraded to a buy by rating agencies as it embarks on an initiative to reach $110 million in EBITDA by FY16. Australian agriculture is exposed to many risks but can be profitable when conditions are right. At the moment, it would be wise to steer clear of the industry until it the Australian dollar lowers and trade agreements are revisited. Otherwise your portfolio may end up in a profit drought of its own.
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