Would-Be Beef Barons, Don’t Be Deterred by Aussie Drought

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Cattle yard at Durham Downs
Cattle at a yard at S. Kidman & Co.'s Durham Downs property in Queensland. Source: S. Kidman & Co.

An area twice as big as Texas is in drought in eastern Australia. Yet, realtors say there’s rarely been a better time to buy farmland Down Under.

The reason is beef.

Exports are at record levels and cattle prices in the east of Australia reached an all-time high this month.

Prices of ranches are at a 10-year low, going for less than A$500 a hectare ($160/acre), according to Herron Todd White, Australia’s largest independent property appraiser. At the same time, U.S. demand for beef has pushed cattle prices to a record, and a weaker local currency has made Outback farmland cheaper for overseas investors.

“It’s a buyer’s market, there’s no doubt about that,” said Tim Lane, rural director with Herron Todd White in Brisbane. “To have all these things aligning, it’s very, very rare.”

Among 16 key international markets for agricultural land, only Uganda and Mozambique were cheaper than Australia, Savills Plc, the U.K.’s largest real-estate agency, said in a report last year.

Index-Beating Returns

Farms in Australia returned more than 15 percent a year in the decade through 2012, Savills found. That’s more than double the average return from Australia’s benchmark stock index over the same period.

Australian real estate is increasingly attractive in Asia, said Rawdon Briggs, director of rural and agribusiness transaction services with Colliers International Property Consultants Inc. in Brisbane. He said he met with prospective investors in Shanghai in March and will be marketing Australian properties in Beijing, Guangzhou and Shenzhen in July and August.

“You concentrate on where the capital’s coming from,” Briggs said. “We’re seeing a significant upswing in interest.”

Chinese Investment

Australia is the world’s largest wool exporter and is one of the top five suppliers of beef, cotton, sugar and wheat. In Queensland, Australia’s biggest cattle-ranching state, Chinese investments jumped by almost half in the year ended June 2014, according to the state government.

Purchases totaling A$463 million made China the biggest overseas buyer and were helped by a 19 percent drop over the past two years in the Australian dollar against the yuan. The local currency has fallen 20 percent against the U.S. dollar and slipped about 6 percent against the euro.

The same currency fluctuations are supporting overseas demand for Australian beef. Exports are at a record and cattle prices in the east of Australia reached an all-time high this month. There’s little sign that will change anytime soon.

Beef Exports

Already, more than 70 percent of beef produced in Australia ends up overseas. Free trade agreements struck by Australia with Japan, South Korea and China since 2014 have lowered or scrapped tariffs on beef exports, helping sales abroad.

“That demand is likely to remain in place at least for the next 12 to 18 months,” said Ben Thomas, manager of market information at industry group Meat & Livestock Australia in Sydney. “That paints a promising picture for prices.”

Long-term investors are looking past the current dry spell, said Tony Lovell, co-founder of asset manager SLM Partners (Australia) Pty., which is raising capital to buy more farms.

“We are seeing them ‘warts and all’,” said Lovell, adding that he’s in talks with an Asian insurance group and three pension funds from the U.K. and Europe to increase the company’s A$105 million SLM Australia Livestock Fund.

There are enough ranches worth buying to justify raising another A$700 million, Lovell said, predicting annual returns of about 12 percent over 10 to 12 years.

Distressed Properties

While drought will erode profits from agriculture in the short-term, it may present good buying opportunities by forcing distressed properties onto the market, said David Hassum, a director and rural specialist at Brisbane-based InterFinancial Corporate Finance Ltd.

In Queensland, in northeastern Australia, more than 1,300 farmers have already asked for emergency funds from the government.

A severe drought affecting at least part of Australia typically develops every 18 years. One has engulfed 80 percent of Queensland over the past few years and may widen its grip because of an El Nino weather pattern, which typically pushes rain-carrying clouds toward the eastern Pacific.

Cattle King

The drought has touched only the fringes of the ranches owned by S. Kidman & Co., the country’s largest private landowner, Managing Director Greg Campbell said. Kidman’s properties, which span 101,000 square kilometers (39,000 square miles) -- or about the size of Kentucky -- were listed for sale last month.

Established in 1899 by Sidney Kidman, Australia’s “Cattle King,” the family-owned enterprise carries 185,000 cattle, producing grass-fed beef for export to Japan, the U.S. and Southeast Asia.

Approaches have come “from all points of the compass,” including Asia, Campbell said.

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