Analysis by professional service firm Deloitte has revealed returns of Australian Stock Exchange listed agribusinesses have far-outperformed major stock indices locally, and abroad.
In a new report, economists calculated the average return of 38 listed agribusinesses at 66.9 per cent, compared with the S&P ASX 300 index (-0.3 per cent) and the US S&P 500 (3.2 per cent).
With a market capitalization of $20.4 billion, Australian agribusinesses make up just a fraction of ASX companies, with the market capitalization of the All Ordinaries at $1.58 trillion.
Deloitte financial advisory partner Richard Hughes said the good results were driven by major turnaround for some of the sector’s prominent players; Elders, Treasury Wine Estates, Ridley and Nufarm.
“We certainly think that agricultural businesses are showing some sign of improvement, and we think long term there’s very good prospects for Australia this is a start of that playing out,” Mr Hughes said.
“Bellamy’s (infant formula maker which listed on the ASX this year) is a standout, showing great returns, and is now almost capped at $1 billion.”
He said turnarounds at Elders, Ridley and Treasury Wine Estate were also notable.
“I think this is just a start of a fundamental shift in agriculture in Australia and I think we are hopefully headed for a period of longer term sustainability and prosperity.”
In an earlier article, Deloitte predicted that it was time to take another look at beef, with strong beef prices and Free Trade Agreement signings.
Other companies, such as almond producer and processor Select Harvests have also delivered strong performance, riding a wave of ever-increasing demand for almonds stemming from a drought in California, the world’s largest production region.
Motley Fool analyst Qaiser Malik believes the good returns will continue into 2016, driven by high protein and food demand from Asia.
He said that would assist companies like beef cattle producer and abattoir owner AACo.
“Demand for Australian beef from Asia is going to rise as seen by recent capital purchased by Asian buyers and AACo is one of the oldest and largest cattle stations in Australia,” Mr Malik said.
He predicted American food processing company Archer Daniel Midland’s bid for diversified agribusiness GrainCorp, which was rejected by then Treasurer Joe Hockey in 2013, could still be poised for a second takeover bid.
“Once a big company tries to takeover a small company and fails, it definitely comes back and tries to make a second attempt.
“They are just waiting for the right time, and the Australian dollar to bottom out and then make another offer, because if the Australian dollar is cheap, it makes sense to make another offer.”
Despite the variability of Australia’s climate and risks of natural disaster, Motley Fool recommends investment in agricultural stocks in 2016.