Agri maintains market leading position despite a slight fall in returns
18 June 2008
Despite recording a slight fall into negative territory over the past month, Australia’s listed agribusiness sector has continued its impressive run as one of the market’s strongest performers.
According to the June Commonwealth Bank Agri Indicators Report, the sector fell -1.8 per cent over the past month – significantly less than the -4.9 per cent loss across the broader S&P/ASX 200 index over the same period.
Although exuberance has fallen slightly from last month to 3 per cent, agri stocks are still a little overpriced. Forecast volatility has also dropped from last month, but does remain slightly elevated.
According to Jon Sutton, Executive General Manager, Agribusiness, Commonwealth Bank, the higher levels of volatility are reflective of the overall market and the outlook for the agri sector remains strong.
"Agri is still a top performer and its dominance in the market is expected to hold in the coming 12 months with forecast returns predicted to be around 11 per cent higher than those forecast for the broader market.
"Although the strong forecast returns make agri one of the market’s most attractive sectors on a risk adjusted basis next to materials, energy and healthcare, it may be prudent for new investors to the sector to stage their investment now in order to guard against any price corrections in the short term," he said.
Year-on-year, the Agri Indicators Report reveals the agri sector to be on par with energy as the strongest performer, delivering investors returns of around 37 per cent. This compares to a disappointing -8.6 per cent in the broader S&P/ASX 200 index.
Mr Sutton suggests that as confidence rises at the farmgate due to recent strong rains across the eastern seaboard, and opportunities for Australian primary producers to play a greater role in global markets continue to increase, the future is looking bright for agri.
"The recent strong rains across the eastern seaboard have buoyed farmers and enabled them to sow crops at the tail end of the season. This has also helped to bolster ag stock Incitec Pivot (IPL) which was already enjoying highs off the back of growing global demand for fertiliser.
"Worldwide trends continue to play a significant role in the domestic agribusiness industry. Food security and a possible worldwide food shortage is fast becoming a major emerging issue for global leaders, particularly the increasing trend towards using arable land for the production of biofuels instead of food crops.
"Australian primary producers are well placed to capitalise on this opportunity to provide more produce into the global market and this will help stimulate further interest from local and international investors," concluded Mr Sutton.
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Notes to editors:
i. About the Commonwealth Bank Agri Indicators Report
The Commonwealth Bank Agri Indicators is created around three 12 month forecasting models – Fundamental Return (consensus forecasts of earning and dividends for individual stocks in the sector), Exuberance (proprietary measure of market mis-pricing), and Volatility (derived from proprietary methods of modelling realised volatilities, detecting changes in long-run levels and correcting for switchbacks and other correlation patterns in the data).
The Commonwealth Bank Agribusiness index measures the performance of the Commonwealth Bank defined ‘Agribusiness’ sector over time. The Commonwealth Bank Agribusiness sector currently consists of 16 rural-dependent companies: Australian Agricultural Company Limited (AAC), ABB Grain Limited (ABB), AWB Limited (AWB), Futuris Corporation Limited (FCL), Forest Enterprises Australia Limited (FEA), GrainCorp Limited (GNC), Gunns Limited (GNS), Great Southern Limited (GTP), Incitec Pivot Limited (IPL), Nufarm Limited (NUF), Primeag Australia Limited (PAG), Ruralco Holdings Limited (RHL), Ridley Corporation Limited (RIC), Select Harvests Limited (SHV), Tassal Group Limited (TGR), Timbercorp Limited (TIM). Companies previously included in the sector but since removed due to delisting or exiting the All Ordinaries index include Queensland Cotton Holdings Limited (QCH) and Auspine Limited (ANE).
The Commonwealth Bank Agribusiness index is a non-float adjusted, market-cap weighted index constructed using the same methodology as the S&P index series. To be considered for inclusion in the index, each stock must be a in the All Ordinaries index. The Commonwealth Bank Agribusiness index begins on 3 April 2000 which is the same date as the launch of the S&P/ASX index series in Australia. At inception there were 8 stocks included in the index. This number is currently 16.
The Commonwealth Bank Agri Indicators should be used as a guide only to the performance of the Agribusiness sector, as a way to measure its performance and potential return over the coming months and year.
The Commonwealth Bank Agri Indicators report is attached.
This report has been prepared without taking account the objectives, financial situation or needs of any particular individual. For this reason, any individual should, before acting on the information in this report, consider the appropriateness of the information, having regard to the individual's objectives, financial situation and needs and, if necessary, seek appropriate professional advice. Past performance is not a reliable indicator of future performance. Commonwealth Bank of Australia ABN 48 123 123 124, AFSL 234945. A full copy of the Agri Indicators Report can be obtained by contacting our AgriLine on 1300 245 463 7am to 7pm (AEST time), Monday to Friday.
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