Agribusiness looking forward to long-term gain

Latest Agribusiness Index paints positive long-term picture for industry, while short-term woes remain as a result of floods

Agribusiness looking forward to long-term gain
Agribusiness looking forward to long-term gain

February 2, 2011

While the full impact recent flooding and impending Cyclone Yasi will have on the local economy is still yet to be seen, new data reveals some hope for the country’s agricultural sector.

As reported in the latest Agribusiness Index released by the Commonwealth Bank today, the sector managed to outperform the S&P/ASX 200 Index, returning 8.3 percent for the December quarter compared to 4.4 percent for the broader share market.

Based on consensus analyst forecasts, the forecast fundamental return indicator for the agribusiness sector also remains high at 21.7 percent for the year to December 2011, above the 17.5 percent forecast return for the S&P/ASX 200 Index.

Despite this strong performance, however, the forecast return has declined from 33.8 percent for the September quarter, largely due to earnings downgrades from companies including timber manufacturer, Gunns.

While the latest Agribusiness Indicator paints a "good picture" for the industry, Commonwealth Bank Executive General Manager of Regional and Agribusiness Banking, Brendan White, points out the short-term impact recent flooding has had on business.

"Although the listed Agribusiness sector saw a strong end to 2010, there’s no doubt that the sector has taken a hit," White says.

"We can expect to see a negative near-term impact for businesses based in Queensland, Northern New South Wales and Victoria, especially for cotton and grain and also the beef industry, which will be affected by the loss of pasture and disruption to the movement of both fodder and animals," he says.

However, White says it is important to note that there is also some better news for the sector, with longer-term advantages including better moisture profiles and strong commodity prices.

The Index shows that forecast volatility has continued to decline, decreasing from 24.2 percent to 22.7 percent for the year to December 2011.

On a risk-adjusted return basis the Agribusiness sector is currently sitting in the middle of the 12 S&P/ASX 200 sectors, broadly in line with the overall market.

This does not, however, take into account the full effect of the recent floods.

The Agribusiness Index comprises 14 rural-dependent companies in the All Ordinaries Index that directly grow food or fibres, produce raw materials and fuels or provide agricultural services in Australia.

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