Agribusiness sector continues strong run against broader market
Tuesday 26 May, 2009: The listed agribusiness sector remains in positive territory and has continued its strong performance relative to the broader market, according to recently-released data by the Commonwealth Bank.
The May Commonwealth Bank Agri Indicators Report revealed the listed agribusiness sector delivered a return of 3.7 per cent in the month to 15 May 2009, compared to an almost flat result of 0.8 per cent for the broader S&P/ASX 200 accumulation index.
Brendan White, Executive General Manager, Commonwealth Bank Agribusiness said continued depth and resilience of the agribusiness sector as well as strong performances from a number of the companies within the Agribusiness Index have contributed to the sector’s strength during the past month.
“Despite continued market volatility, strong performances by ABB Grain Limited, Tassal Group Limited and GrainCorp Limited has resulted in a solid performance for the Agri Index over the past month,” he said. “Obviously the takeover bid by Viterra for ABB Grain Limited has had a significant influence on the result however, this aside, it is still pleasing to see the improving trend and outlook for the sector.”
In addition, positive news for investors in the sector is that the Commonwealth Bank Agribusiness Index has returned nearly double compared with S&P/ASX 200 returns for the past three months.
“The Commonwealth Bank Agribusiness Index has returned 15.2 per cent during the past three months, a substantial return for agribusiness investors. This is significant if you consider the broader S&P/ASX 200 has returned just eight per cent,” Mr White said.
Mr White also commented that production prospects and price outlook for the Australian agriculture sector was buoyed over the past month.
“Excellent April rains across much of the east coast wheatbelt provided an ideal autumn break for many east coast winter grain producers, however Western Australian grain regions remained relatively dry,” he said.
“In addition, international agricultural commodity prices continued to push higher. In the month ended 15 May, New York cotton futures soared 25 per cent, Chicago wheat futures rose 15 per cent, Sugar futures rose 14 per cent, and Australian wool prices firmed 9 per cent.”
More good news for the Australian agriculture sector is that the consensus forecast return is significantly higher than last month and is now sitting at eight per cent for the year to May 2010. This increase is on the back of stronger earnings expectations for some stocks in the sector.
“However, investors should continue to be aware of the forecast volatility for the sector which remains elevated at just under 30 per cent for the next 12 months.”
“On a risk adjusted basis the outlook for the sector is moderate – but significantly better than that for the broader market – and broadly in line with what’s expected for the Consumer Staples, Consumer Discretionary, IT and Industrials sectors,” Mr White said.
“The May Agri Indicators Report confirms that while the market will remain volatile the listed agribusiness sector seems to be maintaining strength well. Although this may present strong buying opportunities investors will no doubt remain cautious in the short term,” he added.
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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 14 rural-dependent companies: Australian Agricultural Company Limited (AAC), ABB Grain Limited (ABB), AWB Limited (AWB), Elders Limited (ELD), Forest Enterprises Australia Limited (FEA), GrainCorp Limited (GNC), Gunns Limited (GNS), 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). Companies previously included in the
sector but since removed due to delisting or exiting the All Ordinaries index include Queensland Cotton Holdings Limited (QCH), Auspine Limited (ANE), Great Southern Limited (GTP) and Timbercorp Limited (TIM).
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 14.
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.
- 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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