INVESTMENT OUTLOOK

Hold on to your hat - we may be just at the beginning

In an astonishing address,  China's Deputy Head of the Central Rural Work Leading Group, Chen Xiwen noted that  

"the land is sick and we need to have fundamental change in agricultural management; will need more food imports during a long remediation"

The following is taken from interest.co.nz.

Farmland in international top ten

 

Thinking of dairy - move now for a value buy

I try not to become too excited too often.  Generally high levels of excitement can end up with disappointment.  What I am referring to is high commodity prices are generally followed by lower commodity prices.

MyFarm has contracted a farm at present which we are syndicating - Gold Creek Limited.  We take over 16th of December.  To date we have assumed investors will get an excellent rate of return over their first 6 - 8 months of investment before presumably falling back to more normal returns as the milk price moderates.

It is all about China

The dairy industry is, at present, a bet on China.   According to Agri-hq, a dairy internet news and information website, China imports during the first half of 2013 increased by 46% year-on-year as shown in the chart below.

Buy (a share of) a dairy farm now, not later

It's a very good time to buy (a share in) a dairy farm.  

Now.  

Not next year.

Why?

High milk price

We know the milk price for 2013/14 is already forecast at $7/kg mik solids - but at current globalDairyTrade auction prices it would be over $8/kgMS. There is a long way to go in the season but investing into a business when it's earning very high revenue is always a good idea.

Higher cow values

World economic developments and dairy

Outside of developing markets such as China the world economy has been in a funk since 2008.  Financially-derived recessions take much longer to overcome, we are told, and whilst that seems to be the case, there does seem to be the glimmerings of recovery in the United States.  

The question then arises, "what will happen when quantitative easing and close to zero interest rates starts unwinding"?

2013/14 - Commodity Prices Strengthening

Commodity prices are cyclical – that is why MyFarm has, over many years, targeted high quality farm investments with lower levels of debt which are still profitable at low points in the cycle.  

2012/13 has been a low point in the cycle with the milk price at $5.50 per kilogram of milksolids.

All indicators suggest a very much better outlook for 2013/14 and 2014/15.  

Investors can't get enough of soft commodities

There was excitement amongst the investment community on Friday the 30th of November - the day that Fonterra units were listed on the NZX.  Jumping from $5.50 to $6.85 by close there was clearly huge demand for the Fonterra and dairy story.

We all know that dairy dominates the NZ export economy.  NZ investor ownership of farmland is tiny - probably less than $1 billion - held by NZ Super and investors in farm syndicates. 

NZ Dairy Outlook - Warm trending to Hot

Why does a dairy farm investment deserve consideration despite a relatively low milk price currently?  What is the outlook for 2013/14 and 2014/15?  And how strongly do the supply and demand trends really support dairy?

For answers to these questions, plus a discussion on the 'buy Fonterra shares or buy a farm' debate, see the following Dairy Investment Outlook.

Returns, Risk and Liquidity

Having spent a week in Europe it is clear that there has been a sea change in the investment world.  The change has probably been there for a while but there is nothing like breathing it to bring the message home.

Investors treasure three things;