Agri stocks weaken but outlook for industry remains positive
17 March 2009
Australia’s listed agribusiness sector weakened for the second consecutive month according to recently-released data by the Commonwealth Bank. However, sentiment about the broader agribusiness sector is bolstered by a positive longer term outlook.
According to the March Commonwealth Bank Agri Indicators, the listed agribusiness sector weakened 8.2 per cent, against the broader S&P/ASX200 which fell 7.3 per cent during the month. The decline, although smaller than last month, brings the listed sector in line with the rest of the market.
Brendan White, Executive General Manager, Commonwealth Bank Agribusiness said current uncertainty in world financial markets has implications for the global economy and the agribusiness sector is not immune to this dislocation, however there are a number of positive factors which support a more optimistic medium term outlook for the sector.
“As we heard at the recent Australian Bureau of Agricultural Research and Economics’ outlook for 2009, despite the prevailing drought conditions in southern parts of Australia and weaker commodity prices there are a number of favourable opportunities emerging for the agribusiness industry,” Mr White said.
“Australia’s farm export earnings will significantly benefit from the lower Australian dollar and an increase in crop production including the expected larger wheat crop.
“In addition, the global demand for food and protein particularly from the Middle East and the emerging middle class in China, India and Asia will also contribute to the positive outlook for our meat export market.”
Mr White also commented while the Agri Indicators reveal a negative forecast for the sector, agribusiness is not alone with the sector mirroring the general economic forecasts for the next 12 months.
“Although we are witnessing a softening in investor confidence in the listed agribusiness sector, historically it remains a resilient sector with the ability to withstand the short-term ramifications of the financial crisis and the consensus view is that it will ultimately regain wealth in the longer-term. The March Commonwealth Bank Agri Indicators data reiterates this longer-term view.
“Whilst we can’t ignore this month’s decline in the listed sector, the fundamentals of agribusiness remain solid and over time we should see investor confidence return to the sector resulting in some uplift in the Agri Indicators.”
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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.
Further information in the Commonwealth Bank Agri Indicators report.
- DISCLAIMER: 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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